of my favorite teachers used to tell me that “there is opportunity in
everything.” This is especially true in
the stock market; as money leaves one asset, it flows somewhere
else. In the case of natural gas, its exceptionally
low price has been driving other investments slowly but surely higher;
let me share
with you where the money seems to be flowing…
we explore the potential benefactors, I want to take you back a couple
years. Perhaps it was elementary or middle school
when you first learned the laws governing matter and energy.
Coincidentally, they actually apply (at least
loosely) to the markets and I thought it would be appropriate to offer
Matter (Energy) - Everything Must Go Somewhere
first law of energy and matter tells us that nothing really disappears,
simply moves elsewhere. In the stock
market, when a stock is sold, the proceeds flow into someone’s bank
the costs out of another’s.
natural gas, the losses (on price) that are being taken by investors,
and speculators are flowing into the hands of companies that are using
gas to run their factories or generators.
Utility companies like Calpine
(CPN - Snapshot Report)
and ONEOK (OKE - Analyst Report)
generate electricity), distribute and market natural gas to the masses
benefit from lower price natural gas due to lower input costs, but
retail delivery prices to the consumer.
Out of all the ways to play cheap natural gas, these types of companies
will most likely benefit the least.
on the theme of moving matter, the next group to consider are the
companies. With natural gas being
inexpensive, demand should rise and volumes increase, which should be a
motivator for these stocks. A
distribution company like Enterprise Products
an MLP, provides processing and transportation
services for producers of Natural Gas Liquids (NGLs).
You Can't Get Something
law reminds me of the old saying on the trading floor “there’s no such
a free lunch.” As an investor you must remember that you can’t have
without risk. The more you want to make,
the more risk you will have to take -- period.
generate energy and get your car moving, you need input. That
could be a push, an engine or even a
steep hill; because free energy is impossible.
To power our lives, we need to pour gas into our fuel tanks, fill up
propane containers or harness the natural gas that flows into our
issue is that we “get” our energy from countries that may not think too
of us, not to mention they control the cost of that energy to an extent
thus the cost of our locomotion and progress as Americans.
companies that can get natural gas out of the ground and distribute it
lowest cost possible to wanting consumers will benefit from the natural
revolution that is quietly occurring. Chesapeake Energy (CHK - Analyst Report)
America’s second largest nat gas producer and one of the largest
owners in America.
perhaps more importantly, they recently partnered with GE to deploy
250 of GE's ecomagination "CNG In A Box" fueling systems across the
United States through 2015 via an affiliate, Peake Fuel Solutions.
goal is to become the catalyst for auto makers to produce nat
in the states and then become a key supplier for fuel.
Nothing Is 100% Efficient
law states that you will lose some energy when trying to convert one
source to another. In the market, you
may experience this when you are paying commission and maybe only
of your money invested in the asset you want to buy.
When you burn gasoline
in your car engine, you are only capturing about 25% of that fuel’s
energy. For natural gas, this might be a
good thing because it (CNG) can be produced at about the same cost (or
gets better mileage than traditional gasoline.
fact, you can store about the same amount of CNG needed to get typical
you would from standard petrol, but at a lower
cost. Because both types of fuels are similar in
volume and mileage, it makes sense to convert vehicles to nat
gas. In Friday’s Real
Time Insight I mentioned that
companies like Waste
their fleets to natural gas and thus saving money on fuel.
an investor, there is an even more direct way to invest in this
through the engines themselves. Westport Innovations (WPRT - Analyst Report))
leading developer of technologies that allow engines to operate on
clean-burning fuels such as natural gas, hydrogen and hydrogen-enriched
gas. Back in 2001 they partnered with Cummins (CMI)
to create Cummins/Westport,
a 50/50 joint venture to produce Natural gas engine for industrial and
you cannot invest in the joint company directly, Westport would be the
beneficiary of a large take-up in machinery being that the majority of
income is derived from the natural gas conversion business.
is a multitude of ways to invest in natural gas, just make sure you
burned in the wrong one. (We are reissuing this article to correct a mistake. The original
article, issued May 29, 2012, should no longer be relied upon.)