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David Gardner’s “No Choice Revolution” Natural Gas Stock

Well, the copywriters over the Motley Fool seem to have been working overtime to churn out ads for the Motley Fool Stock Advisor … so I guess the lights will stay on late into the night at Gumshoe HQ, too. What is it they’re pitching now, and why does it have so many of my readers revved up?

Here’s the part that catches your attention:

“The simple fuel injector (pictured below) could power the “No Choice” revolution…

“And the ONE SMALL, PUBLICLY TRADED COMPANY that makes it has a patent portfolio that dwarfs those of Siemens, Toyota, Ford, and CAT — all now clamoring to get a piece of the action…

“On March 30th at Georgetown University, President Obama publicly backed this small company’s mission — and sent its shares soaring…

“Here’s the important part in all this for you: this stock is still poised like a spring, waiting on a congressional announcement that could come as early as TOMORROW…”


>ahem< Sorry about that, just got a little excited -- oh, and no, I didn't copy over the diagram of a fuel injector that the Foolies included, sorry. Try to imagine it, if you will. So what is this stock? First a bit more teasing ... we're told that this is another of David Gardner's "top dog" and "first mover" companies in a space where there is a huge unmet need (might it also be a "Spiffy Pop?” Hope springs eternal) …

“David instead invests like a venture capitalist — focusing on ‘first movers’ and “top dogs” capable of breathtaking innovation… often delivering lower consumer prices and improving the lives of millions and millions of people in the process.

“But let’s back up a second. Here’s what I mean by a ‘first mover’: A company with a product or service so revolutionary it disrupts an existing industry or creates an entirely new one. And a “top dog” is a company that dominates its industry and basically has no peer.

“On the rare occasion you find a company that is both a top dog and a first mover — the chances are pretty good you’ve found your next big winner. And that’s exactly what David projects for the small ‘no choice’ fuel company I’ve been telling you about…

“Keep in mind, though, the time needs to be right if rare, possibly life-changing profits are your goal… there needs to be a historic need for a solution. And a particular company uniquely positioned to deliver it. ”

And then, in teasing us with a few more details about the specific company Gardner is pitching, we also learn where the “no choice” bit came from:

“This little company, David Gardner’s top pick for new money now, is the technology leader in the conversion of diesel-fueled engines to natural gas.

“Its proprietary technology centers around the fuel injection system, it has all the patents sewn up, and the lion’s share of the natural gas engine market already locked down!

“The New York Times writes, ‘this isn’t pie-in-the-sky technology: there are already 12 million vehicles around the world that use either liquefied or compressed natural gas, though only 140,000 in the U.S.’

“Meaning, we’re in the very early stages here in the U.S. of a landmark shift to what one analyst at bank Societe Generale calls the fuel of ‘no choice’…

“That’s because it’s really our only viable course. Take a look: there is enough known natural gas in North America to last centuries… and it won’t involve a future of transferring huge amounts of wealth to Middle East sheikdoms while competing with the Chinese for imported oil.”

And the urgency?

“But a quick word of warning: Wall Street is beginning to catch on. In March, Morgan Stanley issued its first report on this little company…

“JP Morgan began covering this stock in April with a 42-page ‘initiation report.’ And other firms are following suit as we speak.

“Now I have to ask you… what would make the biggest financial firms in the world take notice of a small-cap company like this? I’d say it could only be one thing: they project an epic move.”

So what is, in their words, “David Gardner’s #1 Stock for the Coming ‘No Choice’ Fuel Revolution?”

Toss all that into the Thinkolator, and we find the answer right quick: This is our old favorite Westport Innovations (WPRT)

I’ve owned Westport in the past and I profiled it for the Irregulars a few years ago when it was still trading primarily in Canada — they are indeed the leader in heavy natural gas engines, they have a great and lucrative joint venture with Cummins to build midsize natural gas engines for fleets (garbage trucks, UPS trucks, city buses, etc.), which is really where the core of the natural gas conversion has taken place (fleets are the “low hanging fruit,” in large part because their vehicles generally stay in a small geographic area and are easy to refuel without needing a big fueling station network). And they’re counting on heavy trucks to supply their next phase of growth and help them become profitable — which means they depend a lot on the political landscape …

… which is probably why this Motley Fool ad is running right now. There was a good article in the Wall Street Journal today that summed up the basic state of natural gas for heavy truck engines, and the short summary is “depends on big government subidies.” These engines cost far more than competing engines, especially in the heavy truck business where Westport doesn’t have quite as much economy of scale as they do in their Cummins joint venture, and the stock has waxed and waned based largely on changing subsidies and on sentiment about future subsidies. The base argument for natural gas engines is strongly in an uptrend right now, not just because of energy security but because the engines can operate at a lower cost than diesel engines because of the last few years’ disconnect between natural gas and oil prices (which itself is thanks to shale gas, for the most part), but I don’t know how to handicap the future for natural gas engine subsidies in a world of competing priorities and budget pressures.

The urgency of the email builds around the potential for natural gas legislation being passed, as you might expect, but there is often news from Westport — unfortunately for them, the non-political news seems to have limited ability to move the stock since the non-political news doesn’t yet create earnings (they’ve not had a profitable year, so announcing that Caterpillar is “evaluating” their technology for their high-horsepower fleet, like they did yesterday, doesn’t really count as enticing news yet)

I do like Westport and the technology, and I have suggested the shares to the Irregulars in the past (though that was several years ago, and I would have been scared out of the stock during California’s fiscal crisis — their original goal to become profitable in 2009 depended on rapid adoption of natural gas drayage trucks at the California ports, and I was worried about CA’s commitment during their budget crisis), and if you think natural gas infrastructure buildout will happen on the highways, and, more importantly, if you believe that we’re on the dawn of a long-term system of stable and predictable government support for “no choice” natural gas as a transportation fuel, including, probably most importantly, very good subsidies for natural gas trucks, then I bet Westport will do really, really well. If subsidies are cut or don’t get written into law at the level that fleet owners need to be motivated toward conversion, then WPRT’s stock could certainly suffer — the natural transition to natural gas as a transport fuel, without aggressive subsidies and infrastructure support from the government, could easily not happen, or could happen far more slowly than a company like WPRT needs to generate profits. There was also, coincidentally, a free article from a different author over at the Fool this week that mentions WPRT as well as Clean Energy Fuels (CLNE, the company most levered to building out natural gas fueling stations), you can see that here if you like.

I’ve said before that if I could buy Cummins Westport, their JV with Cummins, I’d do that in a second because having every city bus and garbage truck on natural gas is the easiest transition, and the one that needs the least US government subsidizing … but we can’t do that, and I haven’t been confident enough in Westport’s heavy truck business to buy back into the shares in recent years. Their share of Cummins Westport makes up the vast majority of both revenue and earnings for Westport, but it’s the heavy investment in building up their partnerships with other groups, particularly their heavy duty truck business, that drags on the revenue and prohibits that Cummins Westport profit from hitting the bottom line (it’s also, on the flip side, the investment that could potentially turn them into a far larger company). Is this another case like Netflix, where I’m being a fuddy duddy about a Stock Advisor pick that someday goes ballistic as a half-dozen or so of his ideas have in past years? Or is this another one of those “forgotten” picks that aren’t going to be mentioned in future teasers as 500% gainers?

Westport, absent profit or dramatic revenue bumps, moves a lot on sentiment for natural gas vehicles, and on investors sniffing the air in the corridors of Congress — seems like the political side is actually moving in their favor now, though the stock is down a bit from it’s highs, but I’ve thought that before and been wrong. This is a billion dollar company that, despite a multitude of partnerships with heavy truck, engine, and equipment companies, really needs a bit of a jump start to get to profitability, and the US government is the most likely source of that spark. That’s just my opinion, of course — your mileage may differ. Let us know with a comment below if you see that jump start coming soon from Capitol Hill, or if you think the technology leadership will evaporate or political follow-through will be lacking.



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breaking news
8 years ago

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