UPS, GE, and Waste Management: The 3 Most Important Companies in Natural Gas Vehicle Development?

Most investors are looking at energy companies and engine makers to invest in the shift toward natural gas for transportation. But United Parcel Service, General Electric, and Waste Management are probably doing more to advance natural gas vehicles than any other companies.

Jun 5, 2014 at 1:41PM

If you've looked for a way to invest in the growth of natural gas vehicles, chances are you've looked at companies like Westport Innovations and Clean Energy Fuels, or Westport partner and leading diesel engine maker Cummins. However, the three companies that are probably doing more for natural gas vehicles than the rest aren't likely to be the first to come to mind: United Parcel Service (NYSE:UPS)Waste Management (NYSE:WM), and General Electric (NYSE:GE)

Let's take a closer look at what these three giants of their industries are doing, and how their steps go beyond just advancing the industry and add real value to their businesses. 

Leveraging its assets 
Waste Management is the largest waste removal company in the U.S. and has been at the forefront of green initiatives for years. What's quite compelling about Waste Management's renewable practices is that they are as much about how they can help the bottom line as they are about sustainability. Already, Waste Management generates enough biogas to power 440,000 homes, and in California's Bay Area the company fuels more than 300 garbage trucks from biomethane produced from its Altamont, California, landfill:

Source: Waste Management.

Waste Management operates 50 natural gas fueling stations as well, working with companies such as Clean Energy Fuels to construct and maintain the stations, so the company can focus on its core business. Eighteen of the locations are publicly accessible, but the idea isn't to go into another business: The stations have to provide an economic benefit to Waste Management, and public access cannot interfere with its daily operations. 

How big is the company's initiative around natural gas vehicles? As of February, only 2,600 of the company's 18,000 vehicles ran on natural gas, but the company plans to have 80% of its fleet converted to NG by 2020. That leaves another roughly 12,000 vehicles to replace. Considering that management expects this initiative to be worth $1 billion in savings, I'm betting they get there. 

However, everything's not all roses with the company's green efforts. In 2013, it took a $483 million impairment charge related to its waste-to-energy business. The good news is this is a non-cash charge. The bad news? Goodwill starts out based on real cash investments, and it took almost 20 years for the company to rationalize this part of goodwill.

Here's a look at three important metrics for Waste Management:

WM Dividend Chart

WM Dividend data by YCharts

The company is using its massive cash flow to buy back shares, increase its dividend, and invest in improving the business and lowering costs. Sustainable initiatives are a big part of this process.

Ge Lm

GE's LM2500 Fast Ferry turbine engine is designed for LNG. Source: GE.

Involved in every part of the value chain
General Electric is a diversified industrial giant, with ties to every part of the natural gas story. Not only does GE make key technology like liquefaction systems and natural gas compressors that are used to produce NG for vehicles, but it also is one of the largest locomotive builders. GE is working with BNSF Railways, CSX, and others to develop natural gas conversion systems for existing diesel locomotives, and new LNG-fueled locomotives. The company's NG engines also work in several maritime applications, which are attractive targets for low-cost and cleaner LNG. 

Its diversity in the utility (gas turbines for electric plants), oil and gas (involvement in almost every aspect of production, exploration, and distribution), and transportation segments puts GE more at the middle of the story than any other company. 

When evaluating GE, remember it has two parts of its business: finance and industrial. Over the next several years, the company intends to continue to spin off and divest parts of its finance business in an effort to streamline the organization, reduce exposure to consumer debt, and become more focused on its industrial roots.

For investors, it may seem like a reduction of exposure to a very profitable business, but to draw that conclusion ignores the hard lesson learned during the financial crisis, when GE was nearly crippled from the weight of its consumer-finance exposure. A less complex, more focused industrial business will be a better long-term GE than the conglomerate it was becoming. 

G

Almost 20% of UPS's heavy trucks will be LNG by this fall. Source: UPS.

What can Brown do with blue?
United Parcel Service operates one of the largest vehicle fleets in the world, consisting of over 100,000 vehicles. Of these, 3,152 run on alternative fuel, everything from natural gas to propane to electric. The company's fleet of heavy trucks totals 5,700 units. In January, UPS announced that it will have between 900 and 1,000 LNG-powered trucks on the road by August. UPS is investing more than $50 million to build enough private LNG stations to -- combined with public stations over the road -- support even more LNG tractors. 

But it doesn't stop there for UPS, which operates more than 900 CNG-powered delivery vans and is adding 1,000 propane-powered vans. As UPS's Kelly Pruitt said in this recent video, "Our strategy has always been to look for technologies that make financial sense, as well as have a significant environmental impact."

But the company's efforts on LNG for trucking are really at the heart. After all, the total number of alternative fuel vehicles makes up only about 3% of UPS's fleet, but LNG-powered tractors will make up almost 20% of the company's heavy trucks. Here's another metric to show how substantial UPS's commitment to natural gas for heavy trucks is: The LNG trucks UPS receives in 2014 could make up as much as 15% of the total number of natural gas-powered heavy trucks sold in the United States. 

Final thoughts: Sustainable practices help enhance returns 
All three companies have kept free cash flow steady or grown it since the financial crisis, while buying back shares at the same time:

WM Free Cash Flow (TTM) Chart

WM Free Cash Flow (TTM) data by YCharts

The result? Share price and dividend growth:

UPS Chart

UPS data by YCharts

These efforts in NGVs go beyond being sustainable practices that are good for the planet -- they also add real, sustainable returns to the bottom line. 

Beyond natural gas
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

 

Jason Hall owns shares of Waste Management. The Motley Fool recommends UPS and Waste Management and owns shares of General Electric and Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers