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Are These 2 Reasons to Sell Westport Innovations Inc. Good Enough?

Almost exactly two years ago, I wrote an article  entitled: "Sell These 3 Stocks and You'll Kiss Your Retirement Goodbye." It garnered a lot of positive attention, and I had to pat myself on the pack for doing such a good job.

The only problem: I shouldn't have been measuring the quality of the article by the "Rec" count, but how well things played out over the coming years. MAKO Surgical, the first company, was taken private and underperformed the market by 55 percentage points when it was publicly traded. Chinese search engine Baidu is losing to the market by about 13 percentage points.

And the final company, Westport Innovations (NASDAQ: WPRT  ) -- designer of natural gas engines -- has performed the worst, losing to the market by a whopping 95 percentage points.

The time has definitely come to ask the obvious question: is it time to sell Westport?

Source: Westport Innovations 

Every year, around springtime, I reevaluate all of my family's stock holdings. I find that once a year is a good interval to revisit my investing thesis, without doing it so often that I obsess over minutiae and lose track of the bigger picture.

Since I'm loath to sell stocks, I ask myself what the biggest threats to my holdings are, and if I'm comfortable with those threats. Let's take a look at Westport's biggest threats moving forward, and what I think about them.

Will natural gas really be a driver for the future?
Two years ago, natural gas was ridiculously cheap. An overabundance of the resource being fracked out of North American soil led to a vast oversupply. Any stocks that benefited from cheap natural gas were ballooning, and it was a foregone conclusion that natural gas would be powering many of tomorrow's machines and automobiles.

But things don't always play out as planned. Simply put, there are other cheap and alternative energy sources. For instance, Elon Musk, CEO of Tesla Motors (NASDAQ: TSLA  ) , thinks that in 20 years, over half of all new cars will be electric. We might laugh at that now, but its important to remember that few gave Musk the benefit of the doubt when he started Tesla, and things have definitely worked out for him so far.

Though natural gas per se could play a crucial role in generating the electricity these cars will use, Westport's technology would become obsolete. Musk's plan to build a battery Gigafactory that could both make lithium-ion batteries less expensive and provide a source for renewable energy to be stored poses even more problems for Westport should that technology spill over into the markets Westport serves.

My take: Over a long enough time frame, this is a serious threat.

I like technologies that go hand in hand with building a more sustainable future. I think investors -- and the world in general -- do as well. Westport, though it offers a cleaner solution than petroleum-based engines, isn't really about sustainability.

Though more vehicles have switched over to natural gas over the past five years, I think over the long-term the emergence of renewable and electric vehicles could usurp this growth.

Competition is coming from just about everywhere
Tesla might be a great example of possible disruption, but right now, it's only focused on luxury cars, and Westport doesn't compete there.

Fuel-cell technology, on the other hand, does compete for some of the same customers as Westport -- and recently, it's been gaining traction.

Fuel Cell Energy (NASDAQ: FCEL  ) just announced a deal whereby NRG Energy -- the nation's largest independent power supplier -- would start marketing Fuel Cell's products to their larger customers. And Plug Power (NASDAQ: PLUG  ) announced key contracts or expansions to provide energy for both FedEx and Wal-Mart.  

I'm not saying you should go out and buy Fuel Cell or Plug Power either. Both are very volatile stocks with uncertain futures.  But there's no doubt the potential exists for this technology to eat away at Westport's business if and when it spills over into areas where Westport competes.

Power Solutions International (NASDAQ: PSIX  ) , on the other hand, represents a more direct threat. The company's core businesses overlap quite a bit with Westport's, including its focus on industrial, heavy-duty, and on-highway engines that are fuel-flexible. Unlike Westport, however, Power Solutions is profitable, and has been since going public in 2011.

But probably the greatest threat comes from the original equipment manufacturers that Westport currently relies on for manufacturing capabilities. Though Westport has the intellectual property right now, OEMs are incentivized to build their own natural gas engines in the future, cutting Westport out entirely.

My take: this is enough to convince me that Westport isn't a good stock for my family's portfolio.

Taken as a whole, Westport could easily have a bright future, and shareholders may be richly rewarded. But for me, I'm no longer confident owning a piece of this business.

While I'm very excited about alternative energies and their potential, I need to acknowledge that I don't have any insight which would lead me to believe Westport's technology is superior to all the others which will likely be available over the coming years. An industry expert might have that knowledge, but I'm not that person. And that alone is enough to convince me it's time to move on.

A better way to play natural gas
There's no doubt that our abundance of cheap natural gas will change things moving forward.  But as you see with Westport, predicting the future is very difficult.

That's why the Motley Fool is offering YOU 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 (16) | Recommend This Article (13)

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.

  • Report this Comment On March 17, 2014, at 2:25 PM, realfood wrote:

    not everybody will own a Tesla and big trucks will never use electric power

  • Report this Comment On March 17, 2014, at 2:32 PM, bigdaddy1958 wrote:

    westport was just on best buy list.

  • Report this Comment On March 17, 2014, at 2:53 PM, RHinCT wrote:

    The Tesla issue is just silly. Elon Musk has never said anything about battery-powered large trucks, and he is not the least bit shy about pointing out every reasonable opportunity (and some that many think are not reasonable at all!) If Musk, the greatest champion of electricity for transportation, doesn't see it happening, why would anyone else?

  • Report this Comment On March 17, 2014, at 3:45 PM, GhostWAVE wrote:

    First of all, you refer to your article last year and ignore all MF's recommendations for WPRT over the same period. This is not to mention the recent "best buy" list. This seals the deal for me. I don't disagree with the recent MF article dissing Jim Cramer and his frequent 180 advice, but you guys live in a glass house. I am finished with both of you.

  • Report this Comment On March 17, 2014, at 4:45 PM, Pancakes22 wrote:

    How the heck does TSLA compete at ALL with WPRT??????!?!

    Is your head in a hole?!?

    There should be no mention of it anywhere in the article.

    You list PSIX as a competitor but don't say how they are a competitor and what they have thats different from WPRT. There are huge differences.

    Seriously brought up the fuel cell thing, with no evidence, as usual to back it up, so why even try.

    WPRT doesn't have just 1 partnership, try multiple.

    Try looking up WPRT operations in China and you will seeing production going from 50,000 a year to over 150,000 in just over a year, not to mention the brand new deal with Delphi and multiple other.

    Sales are are expected to increase from 2500 last year to over 10,000 this year in the U.S. A 400% increase.

    Let me guess, you sold NFLX when it was at 60.

    Stock price is much of the time irrelevant to the company at hand, take a little advice from Buffet.

    Amazing how 2 small paragraphs have more information than your entire article.


  • Report this Comment On March 17, 2014, at 4:55 PM, chrisceeaustin wrote:

    This guy is really funny. He buys at the top and is selling at the bottom. The company's sales are on the verge of blowing up, and now he sells. When the stock reaches 50, he will buy again.

  • Report this Comment On March 17, 2014, at 7:01 PM, sportz1 wrote:

    We all wish you and your "family" portfolio the best of luck! You obviously did not do your homework and have not a clue as to what you're talking about. If MF says that WPRT is a best buy, those of us who still have a few brain cells firing will take that recommendation to heart. I have been with the Fool so long I can't remember when I was'nt.

    I own WPRT and buy more whenever I have free cash to do so.

  • Report this Comment On March 17, 2014, at 8:14 PM, Questionable2 wrote:

    "Ford (NYSE: F ) , for instance, is working with Westport Innovations (NASDAQ: WPRT ) to equip certain F-series pickups with Westport's WiNG dual-fuel system, which it hopes will offer customers a more seamless integration experience." from some foolish article

  • Report this Comment On March 17, 2014, at 9:00 PM, AJX7945 wrote:

    I got sucked into the Westport articles by Motley Fool and am frankly, feeling like one. Guess that's what they mean "Motley's Fools" - pay them to "research" err..."puff" up the stocks and see what happens. Been holding on to my Dolby for two or three years and may just about get my money back when it goes back to $42.50.

    Traded Westport several times and made good money on the "puffs" that Motley puts out. At this point I'm even and just can figure out what to do. Each year that goes by, Wesport burns cash. Soooo,,, they issue more stock. Read: "Water me down boys". So we were at $50 at some point and now at $16.75 with probably half the equity and someone rates it a "buy". Now, suddenly our writer - Motley Fool no less is having 2nd thoughts.

    So - is this our "10 banger". Only if any of you buy any more of it, again and again. You'll be "banged" for sure. I'm simply waiting for our good guys at Motley to start huffing and "puffing" again so I can sell this mess on the upswing.

  • Report this Comment On March 17, 2014, at 9:37 PM, TMFCheesehead wrote:

    Thank you all for the responses,

    I think it's important to understand when I invest I like looking out years into the future. While Tesla or Power Plug specifically may not be a direct threat, my larger point was that I no longer saw natural gas as the hands-down obvious choice for fuel in the future anymore.

    The technology is changing too quickly for me to predict. And, as I stated in my article: << I need to acknowledge that I don't have any insight which would lead me to believe Westport's technology is superior to all the others which will likely be available over the coming years. An industry expert might have that knowledge, but I'm not that person. And that alone is enough to convince me it's time to move on.>>

    In regards to this conflicting with what some MF services may have recommended, it's important to read the disclaimer at the end of every article: <<We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. >>

    This is more than just lip service--it is something we take very seriously. And I hope I made it clear that I was speaking for myself only, no premium service that we offer.

    Truly, for those still holding shares, the company, its employees, and customers, I hope WPRT does great in the future. For now, its simply not a stock I feel comfortable holding.

    Foolish best,

    Brian Stoffel

  • Report this Comment On March 18, 2014, at 11:05 AM, Biffou wrote:

    This is one of the things that really ticks me off about Motley Fool. Here you have a February Buy Now recommendation from the flagship portfolio, Stock Advisor, and then less than a month later there is a posting from Brian Stoffel saying "SELL SELL SELL". How are we, as readers of MF, supposed to decide which is right and which is wrong? This would be like President Obama saying that we should do X and Harry Reid coming out and saying we should not do X and do Y instead. I don't want MF to be restraining free thought and expression but because they have no system to track what different portfolios or contributors are writing you end up with one portfolio saying to buy a stock and another saying to sell the same stock or you end up with a portfolio saying BUY and some "contributor" saying "sell". How confusing is that? No wonder there is a churn amongst MF subscribers. They get confused by this constant inconsistency. They need to put someone in charge of what gets written to make sure either there is some consistency or an explanation as to why there is a discrepancy. Sad.

  • Report this Comment On March 18, 2014, at 7:00 PM, TMFCheesehead wrote:


    I'm sorry about the confusion. If you are an SA subscriber who is worried about what this might mean about your investment, please know that these are only MY thoughts on the company, and how it fits into my portfolio.

    There has already been a productive discussion on those boards about the article, and I invite you to read it and constructively add to it if you wish.

    Foolish best,

    Brian Stoffel

  • Report this Comment On March 18, 2014, at 7:39 PM, glensantacruz wrote:

    I don't see the reason for the hostility. He's entitled to give his opinion. It is far from clear that NG is the fuel of the future. That's a fair point. It is a gamble. He's clearly said that it is his own opinion. I don't see any inconsistency. The stock adviser has listed Westport with a risk rating of 14 marking it as one of the highest risk stocks in the adviser. So you should expect it to be volatile. While David is recommending this stock, my guess is that Tom wouldn't. Again I don't find that inconsistent because I roughly understand the investment philosophies of the 2 brothers/teams.

  • Report this Comment On March 19, 2014, at 12:20 AM, rebellemming wrote:

    Great article as evidenced by the divergence of opinions generated and all very emphatically stated. I like WPRT but by "investing" in options which either have or will likely expire "out of the money' , I have lost less than I would have had I bought the shares. The rising tide missed this boat!

  • Report this Comment On March 20, 2014, at 1:20 PM, MWMKR70 wrote:

    Clearly many of the commenters do not understand the Westport Technology ---- The technology is based upon LIQUIFIED NATURAL GAS which can be used in a manner similar to diesel fuel (via injection). This is different from using Natural Gas in a gaseous form. BIG DIFFERENCE .... Research this further and you'll have a better understanding how significant this technology really is .... and the big benefit to the transportation industry (replaces diesel)...

  • Report this Comment On March 25, 2014, at 7:54 PM, fmouat wrote:

    I too find this article very inconsistent with the Best Buy recommendation. I think SA needs to clarify their "official" position on this matter. Is it a best buy or a dumb one to be avoided? I need some guidance from TMF! That's what I subscribe for.

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Brian Stoffel

Brian Stoffel has been a Fool since 2008, and a financial journalist for the Motley Fool since 2010. He tends to follow the investment strategies of Fool-founder David Gardner, looking for the most innovative companies driving positive change for the future.

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