By Brendan Coffey, Analyst and Editor of Cabot Green Investor
From Cabot Wealth Advisory, 2/19/09 Sign up for free Cabot Wealth Advisory e-newsletter
Famed stock investor George Soros published his prescient book, “The New Paradigm for Financial Crisis: The Credit Crisis of 2008 and What it Means,” early last year. His prediction was that a huge market bubble had formed thanks to loose government regulation of the financial industry and an ever widening expansion of credit to consumers and to Wall Street, which allowed the explosive growth in risky derivative products. Sounds right on the mark to me.
Soros also has an unmatched track record that doesn’t rely on luck, most notably a correct bet against the valuation of the British pound that made him $1 billion in profits in one day in 1992. But perhaps Soros doesn’t get as much notice as the doomsayers because he takes a more nuanced view of the position we’re in. Beyond Soros’ general belief in alternative energy, we don’t know exactly what he is buying and selling right now, but regulatory filings do lend some insight.
One of his significant holdings reported in January is 56,306 shares in a company Cabot Green Investor subscribers learned of last summer—Clean Energy Fuels (CLNE). Clean Energy Fuels distributes compressed natural gas (CNG) and liquefied natural gas (LNG) at 170 gas stations in the U.S. and Canada. Natural gas has two advantages—much of it is domestically produced and it burns much cleaner than diesel or gasoline, emitting just 30% of the carbon dioxide of gasoline.
Right now the biggest customers are fleet operators like UPS, Waste Management and municipalities, as well as airports and seaports that need to reduce their carbon footprint in order to expand. The Port of Los Angeles, for instance, now requires trucks and forklifts to be converted to natural gas. Clean Energy makes money by providing fueling stations at such locations, while also providing funding and expertise in securing government incentives to potential customers.
In total, all of its operations cost Clean Energy about $2.50 a gallon, so the economics don’t appear so compelling right now. But consider that national truck emissions standards will tighten in 2010, permitting just one-third of 2007’s allowable CO2 levels. That’s so strict some conventional engine makers, like Caterpillar, have announced they are exiting the business rather than try and comply. Yet natural gas engines are already inside those 2010 limits.
So even if gasoline prices stay low, there is plenty of demand for compressed and liquefied natural gas (CNG and LNG, respectively). And if gasoline prices surge, as the IEA suggests they should? Then Soros’ bet on Clean Energy Fuels will look, well, prescient.
By Brendan Coffey, Analyst and Editor of Cabot Green Investor
From Cabot Wealth Advisory, 7/14/08 Sign up for free Cabot Wealth Advisory e-newsletter
This is a company whose operations are right up our (Cabot Green Investor) alley—producing cleaner energy for automobiles. Oil billionaire T. Boone Pickens founded Clean Energy Fuels (CLNE) in the early 1990s in the belief that natural gas could be a cheaper alternative to diesel for vehicles, because natural gas as a commodity is widely available in the United States. Sales were about $118 million last year compared with $92 in 2006 and $78 million in 2005. Pickens took the company public in May of last year and controls 60% of the stock.
Is it Green?
Sure, natural gas burns cleaner than diesel, which is why many utilities and urban buses are powered by it. It’s not as Green as solar or wind, but incremental gains count, too. Part of Clean Energy’s strategy is to benefit from state and local mandates for cleaner burning fuels for municipal vehicles, a prospect that seems to be improving.
Is it Cabot Green Investor worthy?
There is a lot to like. Sales growth is fine, at 26% annually, and has the promise of being able to post greater rates of increase, as natural gas becomes a more viable fuel option, something we like even more. As a businessman, Pickens didn’t make billions because he’s lucky, so we’re glad he still has a hand on the wheel here, meeting our criteria that a company should have good management. Its market cap ($500 million) also is a size we like, since it signifies a company that is past the volatile and speculative start-up stage but still is growing into its market. Looks good?
Well, after we examine the sales growth trends and market potential, evaluate the management and become comfortable with the financials, we check the technicals. The time-tested Cabot growth model has shown that buying stocks with strong charts—showing an upward momentum in price on increasing volume—is a key differentiating factor in whether a stock is a winner or a loser for the buyer. There are many very good companies out there, but not every one is a stock worth buying.
Looking at Clean Energy, the company went public at 12 in May 2007, worked up to 19 pretty quickly, before plunging to 12 again by August 2007. Since IPOs usually have little institutional support this isn’t surprising, though still not welcome. Shares recovered and worked up to 20 near the end of 2007. Then they steadily began declining, testing and holding support around 13 twice, but they failed to rally and broke through that support this May to a low of 11.
A Pickens-prodded bounce sent shares up double digits on consecutive trading days last week, but a brief rally does not a trend make. Shares still sit below the 50-day moving average, and look all the more bearish because that average is on a downtrend, too. Now it faces lots of resistance up through 14. It’s not a buy yet, if it ever will be.
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Brendan Coffey is a member of the Cabot investment team and editor of Cabot Green Investor. A veteran financial journalist, Brendan has spent more than a decade writing about investing for publications including Barron’s, Forbes, The Wall Street Journal and a number of private-client brokerage newsletters.