A Misallocation of Assets

A Misallocation of Assets

Fuel Systems Solutions Redux

In Case You Missed It

This week brought news that some of the U.S. government’s stimulus package funding has been delegated to some very unique places in Massachusetts: $1.5 million to fix a lighthouse on an uninhabited island, $123,000 to terrorist-attack-proof the Spirit of Boston party cruise ship and $95,000 for the University of Massachusetts at Boston to study pollen samples from the Viking Era.

With millions of people out of work nationwide (thousands here in Massachusetts, although our unemployment rate improved recently), it seems that there are dozens of better uses for the stimulus money.

The first one that comes to my mind is the Greater Boston Food Bank. When people lose their jobs, demand at food banks increases dramatically while supply plummets because people have less to spare, creating a tension between what’s available and what’s needed.

The Boston Food Bank feeds more than 320,000 people annually in nine counties in eastern Massachusetts (a number that likely increased as the recession worsened). It distributes more than 30 million pounds of food and grocery products annually to a network of nearly 600 member hunger-relief agencies, like soup kitchens.

The Boston Food Bank recently sent out a request for people to donate $12 to buy one very large turkey for needy families. I donated and hope that the turkey provides a nice Thanksgiving feast for a family who otherwise would not have had one.

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Imagine if instead of making sure the Spirit of Boston was terrorist-attack-proof, the money had gone to providing turkeys and other food items for hungry families in the Boston area. The Boston Food Bank could have provided 10,250 turkeys with the $123,000 that was spent on this seemingly frivolous project.

The Entertainment Cruises (the parent company of the Spirit of Boston) vice president of marine operations Gary Frommelt was even quoted by the Boston Globe as saying, “We feel that we’re really a low threat for a terrorist incident. But the stimulus was a nice perk.”

Giving the money to the food bank wouldn’t have created any jobs, but it certainly would have benefited those who had lost theirs and were struggling to get by.

When Congress approved the enormous stimulus package, the primary concern was for creating jobs and helping the unemployed.

I just don’t see how spending $1.5 million to restore the Monomoy Point Lighthouse on an uninhabited island is to going to strengthen our local economy. Located off of Cape Cod, the lighthouse will be opened to the public once the restoration is complete. But again, how is that helping to create jobs for the thousands of unemployed Bay Staters?

I have seen evidence of money going to so-called “shovel-ready projects” along the highways in and around Boston. I’m glad that many of the roads damaged by our harsh winters will have fewer potholes and that people are gaining employment through this channel.

But not even these projects, which do create jobs and directly benefit the tens of thousands of people who commute each day, are immune from waste. Most of these roadwork projects have large signs near them announcing that the funding came from the U.S. stimulus plan.

The cost of the 66 signs the state of Massachusetts has erected so far? More than $100,000.

Some of the funding has gone to appropriate channels, as many Massachusetts school districts were able to purchase necessary supplies, but most medical and science grants were handed out based on agencies’ usual criteria that do not account for the economic potential of the projects.

David Williams, vice president of policy for Citizens Against Government Waste, was quoted by the Boston Globe as saying, “People are scratching their heads because some of this doesn’t make sense. Studying pollen during the Viking Age isn’t going to create a lot of jobs and help the economy.”

I couldn’t have said it better myself.

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I received an email from a reader this week after Brendan Coffey’s Cabot Wealth Advisory on Tuesday that mentioned Fuel Systems Solutions (FSYS), asking where he could find more information about the company and stock.

The reader isn’t a Cabot Green Investor subscriber, although I hope he becomes one since he has a clear interest in the Green sector, so I couldn’t point him to Brendan’s original recommendation.

But fortunately enough, Timothy Lutts also wrote about Fuel Systems recently, so I sent him that write-up instead. I’m guessing that other readers might have also missed Tim’s discussion last week (when I worked at a newspaper, we used to say that if one person wrote or called in to say something, there were 1,000 people out there thinking the same thing). So I’m re-printing Tim’s recommendation here today so you can get a better picture of Fuel Systems:

“If you’re in the mood for buying, you should take a good hard look at growth stocks hitting new highs.

“One I like a lot is Fuel Systems Solutions (FSYS), which was recommended back in August by Cabot Green Investor.  In that issue, editor Brendan Coffey wrote the following.

“Fuel Systems Solutions makes the equipment and systems that convert a traditional engine to one that can use CNG, LNG or propane or to an engine that has the option to use either CNG, LNG, propane, diesel or gasoline on demand.

“Fuel Systems grew out of a 50-year-old California company called Impco, which focused on industrial equipment and stationary power, and combined last decade with Italian competitor BRC, which focused on light vehicles.

“Fuel Systems sells to the aftermarket for individuals or companies that want to convert existing engines to use natural gas, and to the original equipment market (OEM), tweaking automakers’ cars and trucks to use CNG or LNG before they are delivered to dealers.  …  Whether OEM or aftermarket, conversion work involves adding equipment under the hood and replacing or installing additional fuel canisters that store the alternative fuel. Fuel Systems customers include Fiat, Opel, Ford and many other major automakers, none of which account for more than 10% of revenue.

“The company has manufacturing facilities in California and northern Italy, and maintains sales offices in the major CNG and LNG consumer regions, Europe, Australia, India and Pakistan chief among them. In Pakistan, for instance, the relative cheapness of natural gas versus oil means only the elite have cars running on gasoline. In Europe, a desire to reduce air pollution steers consumers to natural gas, as does the European union mandate to get 20% of all vehicles running on fuels other than petrol or diesel.

“The big story for Fuel Systems is the potential of the American market. About 80% of revenues each of the past three years have come from outside the United States … a potential boon is a bill introduced by Senate majority leader Harry Reid of Nevada to provide tax incentives to buyers of natural gas vehicles, a plan that has gotten a lot of vocal support from oilman T. Boone Pickens, who owns the majority of natural gas fueling station chain Clean Energy Fuels.

“The bill would boost the tax incentive to natural gas vehicles to as much as $12,500 per vehicle and to $100,000 for natural gas fueling stations. The bill is certain to pass, if the number of its co-sponsors (77) is a reliable indicator, although it may not be addressed until after health care in September. The House of Representatives passed a bill earlier this summer authorizing $150 million to research natural gas vehicles.”

“Well, today the bill has not yet passed; the House has been busy with the health care bill and other matters.  But Brendan’s subscribers don’t mind.  When he recommended the stock back in August, it was trading at 30.  It hit 37 in September, and then marked time for a while, letting its 50-day moving average catch up.

“Late October brought a sharp dip below that moving average, shaking out weak holders, and then last Thursday the company announced excellent third quarter earnings results and the stock gapped up to new highs on seven times average volume, hitting 45.  And since then it’s kept climbing!

“We know from experience that stocks that gap up on earnings on heavy volume tend to keep running and that’s what FSYS has done.  You could still buy it here, though downside risk is clearly bigger than it was a week ago.

Timothy Lutts

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