Are These 3 Energy Highfliers Right for Your Portfolio?

2013 was a stellar year for investors, with the S&P 500 up more than 30%. But if you were lucky enough to buy shares of Vestas Wind Systems  (NASDAQOTH: VWDRY  ) , GT Advanced Technologies (NASDAQ: GTAT  ) , or Cheniere Energy  (NYSEMKT: LNG  ) any time in the first half of the year, you absolutely crushed it with these returns:

LNG Chart

LNG data by YCharts

With the S&P down almost 5% so far in 2014, some fear that 2014 could see the market decline further. While looking at the big picture is important, even more important is looking at the prospects for the companies you own before making a rash decision to sell out of fear of a market collapse.

With that said, let's take a closer look at these three companies. 

Bright future even without solar?
In 2011, GT Solar changed its name to GT Advanced Technologies, largely based on the potential for the company's new Sapphire products to become a major source for future growth. Tom Gutierrez, GT Advanced Technologies’ president and CEO, had this to say at the time:

We are growing beyond our historic focus on the solar industry to include other growth markets such as the LED industry. We also continue to look for strategic expansion opportunities into other adjacent markets that leverage our core competencies in crystal growth technology and the commercialization of equipment that drives the growth of new industries. Our name is now more closely aligned with our strategic vision and provides a new platform for us to grow and strengthen our global brand.

By January of 2013, shares had fallen 78% since the name change, and the sapphire business -- while growing -- had yet to become a major game-changer for the company. However, the announcement in November that the company would essentially be shifting all its ASF (sapphire furnace) capacity to support a new agreement with Apple, sent the stock up almost 30%, and has largely buoyed the gains from earlier in the year. 

The thing is, there's some lack of clarity as to what the true potential the Apple contract represents. The release said that the deal is a volume play and margins will go down, but it would be "cash positive and accretive to earnings starting in 2014." While profitable from the beginning, there's not much we can tell as to how this agreement will limit GT from developing similar partnerships with other companies.

Almost open for business
LNG exporter-to-be Cheniere Energy started life as an LNG importer, when there was fear of a shortage of domestic natural gas. However, discoveries that there could be centuries' worth of NG in deep shale rock all over the country turned that concept on its ear, and the company began converting its terminal in Sabine Pass, Louisiana, into an export terminal and liquefaction facility before it really ever got going as an importer. With exports not set to begin for at least another year, Cheniere's stock price has moved on news about construction progress, the announcement that the company had plans to add capacity, and the signing of long-term contracts.

Despite a minor -- though expensive -- scare when part of one of the storage facilities recently collapsed, the facility, the first of its kind in the U.S., capable of exporting 27 metric tons of LNG per year, is still on track to start exports next year. 

Not blowing hot air 
Even after 2013's amazing run, investors who bought Vestas shares from 2008 through 2011 are still losing money. The good news is the company looks like it really did take a major step forward in 2013 by adopting the model that Apple has used to become the most profitable company in the world: Let someone else make your stuff. 

Unlike competitors General Electric and Siemens, Vestas does wind turbines, and that's it. When you make one product in an industry that's extremely cyclical, it can be hard to keep enough capacity to satisfy orders when things are good, while also keeping fixed costs low when things are slow. Billions in losses the past couple of years led to major changes, like the decision to sell its tooling & machining business to VTC Partners GmBH in an effort to lower fixed expense.  

Final thoughts: some speculation, but all have their merits
GT Advanced Technologies' deal with Apple raises a lot of questions about the real upside, but there's a lot of potential to walk away from. Management made it clear that it will continue to focus on its SiC and HVPE solar technologies, so Apple's money could pay for innovation in the legacy solar business. 

Cheniere is also a speculative investment that depends on natural gas in the U.S. being cheap and plentiful for many years to come. The good thing is, Cheniere is able to enter into long-term supply contracts at fixed prices, to help keep this a reality. Just remember it's going to be a year before LNG starts leaving the facility to overseas markets. 

As to Vestas, the results are already paying off. On January 6, the company announced that free cash flow for the year would be EUR 1 billion -- as much as double the original projections -- partly as a result of lower costs as well as improved sales results. With 2014 projecting to be a strong year for wind, Vestas deserves a close look, especially with a long-term strategy to sustain earnings, even in down years, now in place.

Looking for more great investments in energy and energy tech?
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 

 


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2810328, ~/Articles/ArticleHandler.aspx, 4/20/2014 10:34:13 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement