Did you know that natural gas prices have fallen nearly as much as oil since last year?
American natural gas was cheap compared with almost anywhere else in the world, even before prices began falling last year. Now it's almost crazy-cheap. That may not be good for the companies that produce it, but it's good for almost everyone else, and there are a handful of companies that are well positioned for the long term.
Let's take a look at some of the best stocks for investing in natural gas.
The best investment in natural-gas vehicles
Adoption of natural gas for transportation has been slow-going. The pace has been hard on equipment manufacturers such as Westport Innovations, Chart Industries (NASDAQ:GTLS), and Quantum Fuel Systems Tech Worldwide, all of which have seen their stocks fall significantly over the past 18 months:
Before rebounding earlier this year, natural-gas fuel provider Clean Energy Fuels Corp. (NASDAQ:CLNE) stock had fallen as much as that of the equipment makers. That's created a great opportunity to invest in the dominant fuel provider for natural-gas vehicles.
No, adoption of NGVs isn't happening as quickly as most expected, but this company is growing sales, and strongly.
While the dropping wholesales price of gas and the lumpy nature of its station-building business led to a small revenue decline, Clean Energy delivered 27% more fuel last quarter than the year before. Over the past five quarters, the company has grown fuel sales by more than 22% every quarter. That has happened even as falling gas and diesel prices have led to slower-than-anticipated adoption of natural gas among heavy trucking and vehicle fleet operators.
Clean Energy does have high risk. The company took on significant debt a few years back to build out its station network, and even with the growth since, it's still losing money. Management, while refusing to commit to a hard deadline, has indicated that the company is likely to reach adjusted EBITDA positive cash flow in about a year.
With more than $220 million in cash and short-term investments in hand, and its capital expenditures spend to be cut more than in half going forward, I think time is definitely on this company's side. Even after the big run-up earlier this year, the stock is well below prior high prices, and it's a stronger, better positioned company today.
The value and upside play
Chart Industries is largely known for its LNG fuel storage systems. However, that's a small part of total sales and profits for the company, which makes all kinds of gas processing and cryogenics equipment for life sciences, healthcare, petrochemical manufacturing, and food and beverage production and processing, just to name a bare handful.
In other words, Chart Industries is one very diverse company, and its prospects aren't tied to any one industry. With that said, the company's stock is down 71% since late 2013:
But earnings per shares are down only 5%. That's a classic case of Mr. Market's having lost interest.
Don't get me wrong -- I'm not saying that Chart's stock will shoot back up anytime soon. The company is facing some headwinds, and natural gas for transportation has been expected to be a catalyst for growth, but it's yet to pay off in a big way. It does look like a fair price for a great company:
Over the past several years, earnings per share have skyrocketed, but the stock price has suffered from the market's loss of interest in all things related to natural gas for transportation.
Dividend growth will be fueled by natural gas
Phillips 66 (NYSE:PSX) is largely known as an oil refiner and marketer, and those businesses make up two-thirds of the company's profits. However, the refining business isn't likely to grow nearly as much or as quickly as either the chemicals or the midstream business. And it's those two parts of the company that are well positioned to benefit and grow, because of America's massive natural gas reserves and production.
The company's refining and marketing business makes up about two-thirds of profits now, and that's probably going to remain the case as long as U.S. oil production remains higher than demand, keeping West Texas Intermediate oil prices down versus Brent, but the long-term growth for the company will be driven by demand for natural gas. Access to cheap American natural gas -- and the growing demand for the chemicals made from it for everything from plastics to fibers to fertilizer -- will be a growth driver for Phillips 66 for years to come. Now is a great time to invest in the early stages of that growth.
Add one of the strongest balance sheets in the business, and a $2.24-per-share annual dividend (worth a 2.8% yield at recent prices), and Phillips 66 offers an incredibly balanced way to benefit from the upside of American natural gas. The company's history of dividend growth make it a great long-term income stock.
What works for you?
What may be someone else's best stock for investing in natural gas may not be the best fit for your portfolio. With that in mind, the three companies all offer something a little different.
Whether you're willing to take on the extra risk of Clean Energy, want a value-based investment in Chart, or like the income-producing prospects of Phillips 66, one of the stocks could be a great way for you to gain some exposure to natural gas in your portfolio.
Jason Hall owns shares of Phillips 66, and shares of and options for Clean Energy Fuels and Westport Innovations. The Motley Fool recommends Chart Industries, Clean Energy Fuels, and Westport Innovations. The Motley Fool owns shares of Chart Industries and Westport Innovations. 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 Motley Fool has a disclosure policy.