Westport Innovations: Clean Tech Losers

NEW YORK ( TheStreet) -- Shares of clean transportation stock play Westport Innovations ( WPRT) hit a speed bump on Wednesday, selling off 7% on heavy volume.

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It was a losing day for clean tech in general on Wednesday, with the markets selling off, and most clean tech stocks ending the day in the red. A good rule of thumb for clean tech trading has always been for a compounded version of bad days for the Nasdaq. The Nasdaq sold off by 1.5% on Wednesday.

The only clean tech stock doing well on Wednesday was lithium-ion battery play Ener1 ( HEV), and the rally in Ener1 shares may have been more a sign of successful marketing than actual business fundamentals improving for the company.

Ener1 announced on Tuesday a joint venture with a major player in China's electric car market, leading to a rally of more than 20% on Tuesday, and another 4% gain on Wednesday. Yet the "news" about the joint venture in China was more of a marketing event than an actual news development.

Ener1chairman and CEO Charles Gassenheimer took to CNBC on Tuesday to announce the Chinese joint venture, and it was timed, probably not coincidentally, to coincide with the historic trade meeting between Chinese President Hu and President Obama this week. The only problem with the Ener1 Chinese joint venture being a reason to buy the stock was that Ener1 announced the same joint venture last May. At that time, Ener1 shares spiked from $3 to $3.66. In this case, announcing the same deal for the second time led to a rally all the way up to the $4.36 mark at the close on Wednesday.

Because not all companies had a joint venture in China to reannounce and plug on CNBC this week, the trading in Westport Innovations shares is more indicative of the profit-taking that might be taking place among clean tech stocks as the markets sell off.

Westport's two closest competitors in the natural gas vehicle sector, Clean Energy Fuels ( WPRT) and Fuel Systems Solutions ( FSYS), were also down on Wednesday, and in the case of Clean Energy Fuels, it was a decline of 4% on elevated trading volume.

The key distinction between Westport, Clean Energy and Fuel Systems is that Westport was still trading at a level at which institutional investors that entered the stock before the 2010 rally could exit at a sizable profit on market weakness and as the legislative outlook for clean tech and natural gas-vehicle subsidies remains uncertain.

In light of this view, it's notable that through the first three quarters of 2010, the 13F filings by major institutional holders of Westport show a net increase in positions, even though some notable holders like UBS were already lowering their stake.

Pictet Asset Management, Provident Investment Council and Columbus Circle Investors also significantly reduced their Westport Innovation stakes through the first three quarters of 2010, according to regulatory filing data from inside sales tracker Insiderscore.com.

Clean Energy is already trading near its 52-week low level, while Westport, even after coming down to the $16 mark per share on Wednesday, remains well above its pre-2010 rally and 52-week low of $10.82.

One clean tech expert said that recent regulatory filings have shown institutional investors lowering their stake in Westport, and it makes sense considering the rally in 2010. Even though there were points during 2010 when the stock traded as high as $21 and other times when it traded even below the $16 mark, there was also the hope for much of 2010 that the Natural Gas Act would be passed.

In light of the Westport trading toll on Wednesday and the fact that Clean Energy Fuels -- whose CEO has been at the forefront of lobbying for expanded federal support for natural gas vehicles -- is already near a 52-week low, the question has to be raised whether there is the political will in Washington in 2011 for energy legislation that includes the Natural Gas Act, or for a passage of the Natural Gas Act on a stand-alone basis.

Natural gas received a little legislative gift in the tax-cut package related to excise tax treatment, but the larger victory of making natural gas fleet vehicle purchases equally priced to conventional vehicles by way of a subsidy remains a legislative wild card.

Any signal that the Natural Gas Act had regained its legislative legs would set off another round of bidding up the natural gas vehicle stocks, but barring that development, there seems little to move these stocks higher, and the rally of 2010, which was predicated on the speculative legislative case, a very uncertain catalyst.

As Westport had managed to hold on to a premium in its shares even though legislative hopes faded before 2011 even began, it's no surprise that it has now stumbled to the lowest level its shares have seen since last June as market sentiment turns negative.

In fact, without a major legislative victory for the Natural Gas Act, it would probably be fair to say it would take an announcement like Ener1's joint venture in China to rally the natural gas vehicle stocks sooner rather than later.

Westport and its natural gas engine joint venture partner Cummins ( CMI) have a history of press releases regarding ventures in China dating back to 2002. Cummins was among the major U.S. industrial firms featured in the new trade agreement announced on Wednesday by the U.S. and China.

-- Written by Eric Rosenbaum from New York.

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