What happened?
Shares of Chart Industries Inc (GTLS -1.41%) are up more than 13% on May 18, rising along with an energy industry that's surging today. At this writing, the Energy Select Sector SPDR (XLE 0.05%) is up more than 8.3%, with the energy industry helping buoy the entire stock market higher today. The SPDR S&P 500 ETF Trust (SPY -0.94%) is up a massive 3.5% at 3:42 p.m. EDT.
So what
Today's big gains are a product of a few things. First off, the broader market is surging on hopefulness that a vaccine for COVID-19 is getting closer to reality, with reports that one candidate vaccine is showing good results in early human studies, as well as positive reaction to statements from Fed Chair Jerome Powell over the weekend, that the U.S. Federal Reserve is still able to take actions to help keep the economy and financial system afloat during the ongoing recession.
Image source: Chart Industries.
Looking more specifically at the energy sector, nearly every stock in the industry is gaining big today on news that Chinese demand for oil has already rebounded strongly from the lows. According to a report from Bloomberg, demand for diesel and gasoline has recovered much of its demand in recent weeks, as the government pushes the agricultural industry to ramp up to maintain the country's food supply, and as businesses and most other industries open back up.
What does this have to do with Chart? After all, the cryogenic gas- processing equipment company doesn't really do much of anything related to crude oil. The short answer: Chart's prospects are heavily tied to the energy industry, specifically large-scale liquefied natural gas (LNG) export and import facilities, and those facilities are mainly being built by large integrated oil and gas companies, or the companies building them are relying on large investments from integrated oil.
By extension, today's big run-up for Chart's price is investors seeing better prospects that large LNG facilities will get built sooner rather than later. LNG is largely detached from oil in terms of interest and demand, but much of the funding for those facilities is expected to be paid for with the cash flows generated by oil.
Now what
Needless to say, that's caused the 2020 oil downturn to weigh heavily on companies like Chart and is the main reason why its shares were down as much as 75% at the low point during the stock market crash. Even after a pretty big recovery from the bottom, Chart stock is still off almost 47% this year.
First, the bad news: Today's optimism for the entire energy sector is probably premature. It's a good sign that demand is recovering in China, but the hopes for a quick vaccine for COVID-19 are probably unreasonable, and a widely available vaccine probably won't happen before sometime in 2021, if ever. And that means it's possible we will see more waves of the deadly disease as more of the economy opens up in the weeks and months ahead.
But the good news is that Chart's business isn't entirely tied to the success or failure of these LNG facilities. The company does a lot of business with the medical and food-service industries, and business there is booming. That's helping -- along with some cost cuts -- to keep the company in solid financial shape during the economic crisis. Additionally, the demand for natural gas around the world will still make those LNG export facilities necessary in coming years; what has changed is when most of them will get built.
Trading at nearly half-off recent highs, with a strong business for the now and great prospects for the future, Chart looks to me like one of the few oil-related stocks that's rallying today worth buying.
