Analyzing a company for investment requires taking deep dives into both the potential upside and the potential downside of the company's operations. We see three possible reasons to recommend selling Clean Energy Fuels (NASDAQ: CLNE):
- Volatility in natural gas prices in the United States could harm the attractiveness of natural gas as a replacement fuel source for gasoline. Utilities such as Exelon (NYSE: EXC) are shedding coal assets due to an increase in costs to keep up with environmental regulations, and because coal is pricier than natural gas for energy generation. Seasonality can greatly affect the price of nat gas, and the U.S. is aiming to become an exporter of the commodity around 2014-2015. All of these issues will shrink the difference between the current supply glut and demand, potentially leading to higher prices.
- Clean Energy needs automakers to buy into the idea that natural gas is a viable fuel in order for its terminal network to turn a profit. Unfortunately, car manufacturers are wary about producing more natural-gas-powered cars without a sufficient network. Someone will need to make the first significant move for this to work.Â
- T. Boone Pickens, the co-founder of Clean Energy Fuels, currently holds around 24% of outstanding shares. Investors will certainly be looking at his trading activity if he decides to shed some of his stake in the company. Any selling surrounding negative news could send Clean Energy's shares plummeting.Â
Watch the video below for a more detailed look at these three key points.