Here's a tricky question to answer: Is there too much optimism built into stocks associated with natural gas transportation?
Many of these stocks got a big lift late last month when President Barack Obama gave a speech on how the U.S. should reduce its dependency on imported oil, leading some investors to conclude that the day when the U.S. trucking fleet runs on natural gas is coming soon. Since then, of course, rising crude oil prices have made the goal look even more urgent.
Joshua Brown, writing at the Reformed Broker, raised the issue on Thursday, quoting from a report in NewsOK: "Oklahoma Reps. John Sullivan and Dan Boren introduced bipartisan legislation Wednesday aimed at increasing the nation's supply of natural gas vehicles, with hopes that President Barack Obama's embrace of the legislation will ensure its passage this year."
Mr. Brown, who has invested in this play, also raises the side benefits of running trucks on natural gas. "The hundreds of thousands of American jobs that would be created building out this infrastructure would be a godsend," he said. "The drop in air pollution and dollars sent to terrorist-sponsoring regimes are just the cherry on top."
He mentions four key stocks in this area: Fuel Systems Inc. , Westport Innovations Inc. , Cummins Inc. and Clean Energy Fuels Corp.
Trouble is, these stocks haven't exactly been ignored, especially in recent weeks - and the perennial money losers seem to be the biggest winners. Canada's Westport Innovations has risen 36 per cent since the Obama speech at the end of March, and is well into a record high. Clean Energy Fuels has risen 17 per cent since the speech, but is 26 per cent below its high last year.
To be sure, there will be winners in this industry if the U.S. gets around to building out a natural gas-running truck fleet. But this sort of investment isn't for the risk averse, especially when you consider that big ideas usually bring big competition.
It reminds me a little of the race many years ago to build hydrogen fuel cells. Ballard Power Systems Inc. was upheld as a leading player, and its share price surged despite a lack of sales or earnings. Ten years later, revenues are small, earnings are still non-existent and the share prices has slipped 98 per cent.