NEW YORK (
) -- Natural gas vehicle plays
Clean Energy Fuels
are trading away from the broader equities markets on Thursday as sentiment swings positive on an expedited introduction of energy legislation.
Clean Energy, which operates in the natural gas fueling station market, has been the real big winner in Thursday's trading session, up roughly 10% at midday and surpassing its average daily volume of shares traded before the midday market -- 2.1 million shares traded versus average daily volume of 1.6 million shares.
President Obama and Senate Democrats have made the strategic decision to press ahead with streamlined energy legislation in the next few weeks, eliminating some of the more controversial aspects, including all-encompassing carbon cap and trade for all industries. The focus of the legislation is expected for include a limited focus on curbing power plant emissions.
The natural gas vehicle stocks are moving on Thursday specifically because Senate Majority Leader Harry Reid (D-Nev.) said that the idea fist promoted by
-- the best friend in the media of the natural gas sector -- to provide tax breaks for the purchase of natural gas vehicles and natural gas fueling stations, would be included in the energy legislation.
At several times in 2010, the natural gas vehicle stocks have ridden the crest of energy legislation optimism. Skeptics were saying on Thursday that even a limited energy bill might have trouble finding its way to passage.
>>Climate Bill Winners: Clean Energy Fuels
Nevertheless, Clean Energy Fuels has seen its stock price tumble this year, and a sentiment trading run on the news out of Washington was not surprising. Clean Energy Fuels had reached a 52-week high near $24 back in April, but had fallen below $16 in trading before its Thursday gains.
Westport Innovations, which has had a more stable stock profile this year, was up more than 4% on Thursday, lower than its 52-week high of $20.44 reached in June, but Westport Innovations stocks has almost doubled in value this year. Westport Innovations makes component for heavy duty truck engines that convert the trucks to natural gas vehicles.
Fuel Systems Solutions
manufactures components for light duty natural gas vehicles, like vans. It has only been active outside the U.S. up to this point, but was also defying the general equities tide on Thursday, up 1.5%. Fuel Systems recently announced its intentions to bring its business to the U.S., and could be up and running quickly if legislation is passed.
Westport Innovations recently announced its intention to manufacture for the natural gas light vehicle space, though Fuel Systems would have a big head start on Westport in targeting this market, its core strength.
Investors know that with plays in the alternative energy space, sentiment trading based on political news is part and parcel of the game. However, there's a fine line between the short-term opportunity afforded by legislative action and the long-term outlook for stock valuations in the natural gas vehicle space.
Clean Energy is a prime example of the double-edged sword of sentiment trading. Clean Energy will receive a huge boost from natural gas vehicle legislation, as its fueling stations will immediately become part of a nationwide chain of natural gas vehicle fleets. However, if the natural gas vehicles tax break becomes reality, all the major integrated oil and gas companies may quickly move into the space.
Shawn Severson, an analyst at ThinkEquity, said it should only take the major integrated oil and gas companies three to six months to get into the business of natural gas fueling stations. Additionally, there are private companies already encroaching on existing natural gas fueling markets of Clean Energy Fuels and driving down the price of its core commodity.
"Clean Energy has to go up compared to Westport and Fuel Systems on the latest legislative outlook, but the question is can they sustain the valuation longer-term when competition begins to encroach on the space," the ThinkEquity analyst asks, though he does not have a formal rating on Clean Energy. "Clean Energy has the ability to feast on benefit of an energy act passing, but ultimately they will have to share a market which previously they owned."
Notably, Clean Energy Fuels made a move on July 6 to diversify its business when it acquired IMW Industries, which manufactures advanced natural gas fueling compressors and related equipment that is sold to station operators and commercial fleets.
Severson said that the acquisition shows that Clean Energy Fuels knows the competition is coming, and needs to diversify its sources of revenue. On the one hand, acquiring a components manufacturer that sells into its own natural gas fueling station market makes sense in terms of vertical integration of business. However, it also shows the need to have a diverse source of revenue as competition hits the natural gas fueling station market.
"They know it's coming, and it's good to be an arms dealer, even when you're in the fight," the ThinkEquity analyst said. The analyst described Clean Energy Fuels as a good company in a great spot right now, but he argues it is a position that will become more difficult to defend over time at its current margin levels.
-- Written by Eric Rosenbaum from New York.
>>Climate Bill Winners: Clean Energy Fuels
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