2-Star Stocks Poised to Plunge: Cheniere Energy?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, liquefied natural gas company Cheniere Energy (AMEX: LNG  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Cheniere's business and see what CAPS investors are saying about the stock right now.

Cheniere facts

Headquarters (Founded) Houston (1983)
Market Cap $791.2 million
Industry Oil and gas storage and transportation
Trailing-12-Month Revenue $293.3 million
Management Co-Founder/Chairman/CEO Charif Souki
CFO Meg Gentle
Return on Capital (Average, Past 3 Years) 1.1%
Cash/Debt $131.3 million / $3.0 billion
Competitors BP

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 16% of the 545 members who have rated Cheniere believe the stock will underperform the S&P 500 going forward.

Earlier this week, one of those Fools, All-Star BuffettJunior1, nicely summed up the bear case for our community:

The company has almost $500 million in short-term debt, and another $2.5 billion in long-term debt. The company has very little cash on hand, about $131 million. The company has never been profitable. So why does this company have a $770 million market cap? Is it because it's in the natural gas industry? Now, I'm no expert when it comes to natural gas, but I do know one thing, currently there is an oversupply of it. Basic economics tells you that once supply outstrips demand prices must go down. Lower prices mean lower profits, a bad thing for an already unprofitable business.

What do you think about Cheniere, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Want to see how well (or not so well) the stocks in this series are performing? Follow the new TrackPoisedTo CAPS account.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

Read/Post Comments (6) | Recommend This Article (1)

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 January 12, 2012, at 11:06 AM, diverdon56 wrote:

    I do not have any money down on LNG, but I think the bear case is less than complete. When the Sabine pass re-liquefaction plant comes on line LNG will profit from those low gas prices by exporting nat gas to places where it costs more.

  • Report this Comment On January 12, 2012, at 11:24 AM, bobfink88 wrote:

    I agree with the previous commenter, BuffetJunior1 clearly does not understand how Cheniere has changed its business model to adapt to oversupply in the domestic natural gas market. They retrofitted their plants to allow for them to export gas via LNG tankers at their terminals on the gulf of Mexico. The main issue to me seems to be whether they can get their export capabilities functioning fast enough to generate enough profits to cover their borrowing costs and repay their loans, or conversely, find somebody or some financial entity willing to refinance their operations until that time. It's a very risky asset, but not for the reasons that were mentioned in this article coming from BuffetJunior1.

  • Report this Comment On January 12, 2012, at 1:35 PM, mj3151 wrote:

    So, 16% of caps players say the stock will underperform. That leaves a mere 84% who think otherwise. I'm long the stock and think the company has a bright future, in spite of the short-term debt issues. I think their first-mover advantage will put them in good position to take advantage of an increasing international demand for LNG for decades to come. The 2-star ranking will go away eventually. A couple more long-term contracts should alleviate some of the concerns about their future prospects.

  • Report this Comment On January 12, 2012, at 2:19 PM, blbrooks42 wrote:

    I think the oversupply benefits Cheniere.

  • Report this Comment On January 12, 2012, at 5:40 PM, LouNg wrote:

    I'm long LNG, and I think LNG is poised to be back above $10 soon. The oversupply of natural gas point to the need and opportunity for export, especially after Fukushima quake in Japan. Nuclear energy has been scaled back greatly, and the trend, EU trend in particular, is total withdrawal from nuclear energy, as German and Italy has chosen. Natural gas price fell below $2.75 per million BTUs the last two days; most natural gas stocks fell 5-10%, but LNG has been up almost 7% the last two days. Today's taken over by Chevron help fuel today surge. LNG high debt level is a risk, recent SPO raise $330M has eased the concern somewhat. I think a take over is inevitable by the like of CRV, XOM, TOT, etc.

  • Report this Comment On January 13, 2012, at 7:59 PM, 3percenthero wrote:

    I agree with most of the above comments. Need to wait and see if they can make it to 2015 when they can start exporting lng. looking to get in at a better price but also waiting to see if they can handle the debt. My guess is they won't be able to handle the debt and will be looking for buyer. I hope i'm wrong and if so we should see some great returns in a few years.

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