Shares of Clean Energy Fuels (CLNE 8.00%) are down a little over 40% over the past year. They're off 80% from their most recent highwater mark in 2021. Is this an opportunity to buy a company with huge clean-energy bona fides, or would investors be better off taking a more conservative approach in the space?
Clean Energy is tapping into cow power
The world is shifting toward cleaner energy options. Natural gas is expected to be a key transition fuel, even though it's a carbon-based fuel. That's because it burns more cleanly than both coal and oil. It's also highly flexible. For example, it has long been used by electric utilities, but it's increasingly being used to power vehicles. It's the latter use that Clean Energy Fuels focuses on.
Image source: Getty Images.
The problem with replacing oil-derived gasoline and diesel is that there's a massive infrastructure built around these vital sources of power. Natural gas requires new production facilities, a new distribution setup, and, perhaps most importantly, new engines. Clean Energy has stepped in very early here to help create the needed infrastructure. That includes everything from production facilities that generate renewable natural gas from organic decomposition (cow manure, for example) and the nearly 600 natural gas fueling stations the company has across North America.
The problem with being early is that Clean Energy has to spend a lot of money to build out its business, while demand isn't nearly as high as the company hopes it will be in the future. Put another way, despite its clean-energy credentials, the company has been unprofitable for most of its existence.
CLNE EPS Diluted (Annual) data by YCharts
Is a big change coming for Clean Energy Fuels?
A big opportunity for Clean Energy Fuels is the trucking industry, where it has been particularly difficult for companies to reduce emissions. In 2024, however, industry supplier Cummins (CMI -0.16%) is expected to release an engine powered by liquefied natural gas (LNG). According to Cummins, it has seen strong demand for the new product. Assuming the trucking industry adopts the new Cummins engine en masse, Clean Energy Fuels has the infrastructure in place to provide the fuel. And that could be a huge turning point for the company and for the bottom line of its earnings statement.
But there's no guarantee that all of the moving parts will actually line up to shift Clean Energy Fuels into the black on a sustainable basis. So despite the steep stock price decline, more conservative investors are probably best off staying on the sidelines until there's more positive evidence to go on. This stock is really most appropriate for aggressive investors.
But there's another option. One of Clean Energy Fuels' largest investors is France's TotalEnergies (TTE 1.10%). The globally diversified integrated energy giant owns roughly 22.8% of Clean Energy Fuels, according to Clean Energy's 2023 proxy statement. That's not a controlling stake, but it is a material one, and it means that, to some extent, owning TotalEnergies is a way to invest in Clean Energy Fuels.
There's a bit to understand here.
TotalEnergies is, clearly, a giant oil company, so energy prices are going to be the main determinant of its financial results. But it has been slowly investing in clean-energy assets, including its ownership stake in Clean Energy Fuels. TotalEnergies is basically trying to shift along with the world toward a cleaner future. If Clean Energy Fuels' business starts to gain traction, owning TotalEnergies means you benefit without having to take on as much risk as investing directly in Clean Energy Fuels.
There's even a chance that TotalEnergies could up its stake in Clean Energy Fuels, as the French company has bought many clean-energy companies in their entirety in recent years. Indeed, such a move, while perhaps aggressive, wouldn't be all that costly -- Clean Energy Fuels' market cap is a fairly modest $800 million -- and the addition would instantly make TotalEnergies a major player in the North American LNG distribution space.
Avoid the risk and collect the yield
Clean Energy Fuels is kind of a binary investment. Either things develop as hoped and the stock rises substantially, or that doesn't happen and the stock remains moribund. A lot depends on the rate of technology adoption in the clean-energy space. TotalEnergies, meanwhile, has a sizable business with a long history of success behind it. It pays a well-supported dividend, offering a yield of around 4.6%. While not a pure play in the clean-energy space, it provides more conservative investors a way to get a toehold in the energy transition through its investments in companies like Clean Energy Fuels. That's likely to be a better option for most investors than taking on the risk of investing in Clean Energy Fuels directly.
