This Company Could Kill the Gas Engine -- for Huge Investor Profit

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( StreetAuthority) -- Every now and then I run across a statistic or a fact that makes me feel really stupid. I kick myself: "Why didn't I already know that?"

What got me is that my red Dodge Ram 1500 is technically classified as a "light truck." I was mortally offended by this. My pickup has a 5.7-liter Hemi V-8 and is as loud as the Space Shuttle and almost as fuel efficient. It doesn't feel like a light truck. But it is.
Millions of semis are driven an incredible amount of miles, getting about five miles to the gallon, burning through billions of gallons of diesel a year.

The thing that matters more than light trucks, though, are the larger semi trucks that roll down the highway. There are millions of them, they drive an incredible amount of miles and they get about five miles to the gallon, burning through billions of gallons of diesel a year.

Now, it's a myth that diesel is dirtier than gas. It might seem like it because of the exhaust, but the two fuels are actually pretty close to equivalent in terms of energy content and emissions. But the fact remains that we use a vast quantity of diesel, and if we could replace it with something else, it would be a serious game-changer. If that fuel were cleaner than gas and diesel, there would be reduced emissions from moving stuff around. But if this new fuel were also cheaper, the diesel dominos would begin to fall, and quick.

The fact is, all of those various kinds of trucks -- and cars, too -- can get the same energy out of a fuel that costs half as much as diesel. That fuel is natural gas, which is abundant, clean and can be domestically sourced. Natural gas has the ability to displace billions of gallons of diesel, not only on the road but in marine applications, which also burn through billions of gallons every year, and for heavy equipment.

That's coming. And I've found a stock that is the strongest pure play on this trend.

That stock is Westport Innovations ( WPRT).

This is an area that has several key tailwinds behind it -- enough to where I think it can legitimately be called the inevitable future. There's simply too much to the story to get into much detail on why I think this is the case, so for today I'll just focus on the stock itself.

Westport's natural gas engines are cost-competitive with diesel engines and have 80% of the parts in common. It makes engines in three divisions:

1. Light duty, which produces engines less than 5.9 liters and serves the automotive and small industrial (such as forklifts) sector.

2. The heavy-duty division, which operates a little differently: It uses an original equipment manufacturer engine but adds special drop-in equipment to enable these behemoths to use natural gas, which helps decrease emissions 21% to 27% while maintaining horsepower and cutting fuel costs.

3. Joint venture Cummins Westport, owned 50/50 with the world's leading diesel manufacturer, which produces natural gas powered engines for larger trucks and tractor-trailers.

A fourth business unit, Weichai Westport, is engaged in bringing these engines to China, which has a rapidly expanding commercial vehicle and heavy-equipment fleet as well as a large reserve of natural gas.

Vancouver-based Westport has a market cap of just under $2 billion, which is right in the sweet spot for the types of companies I like to recommend in Game-Changing Stocks, my monthly stock advisory.

The company had revenue of $264.7 million last year, an 83.3% gain from the year before, and an impressive compound annual growth rate of 39% since 2007. It's also -- surprisingly for an alternative energy company -- solidly profitable. Net earnings in 2001 came in at 37%, and Westport hasn't seen its bottom line fall below a 26% net margin since 2008. How's that measure up? Only 34 companies on the S&P 500 can beat that level of profitability.

A number of factors have converged to form what looks a lot like the perfect storm for natural gas to become a substantial fuel source. Supply and pricing dynamics, industry support, continuing infrastructure development, strong political support and international opportunity -- it's all there. There's simply too much to say on these points to fit into one article.

But let me be clear: None of this is theoretical. It's here. It's happening. Natural gas has been the star of the show, literally, at several industry events so far this year. Major manufacturers are embracing what Westport is doing. Its automotive contact list is a Who's Who: General Motors ( GM), Hyundai, Peugeot, Citroen and Russia's leader, Magna-Gaz. On the large truck side, highway travelers will recognize such names as Kenworth ( PCAR) and Peterbilt, Freightliner, Navistar ( NAV) and Mack Truck.

Risks to consider: The stock is right in the middle of its 52-week range, which is admittedly a wide one. The stock has traded as high as about $50 and as low as $20 in the past year, so be prepared for a bit of volatility.

Action to take: But I've just scratched the surface. T. Boone Pickens noted that the United States has three times more natural gas than Saudi Arabia has oil, "and it's right here in the United States." Plus it's cheap.

The trucking industry wants to use natural gas, the truck-stop operators are willing to sell it, and corporate America is only too glad to embrace the significant cost cuts it will afford. Natural gas also clearly has White House and Congressional support, and it is gaining serious traction abroad, especially in China. The prime candidate to invest in the space is clearly the pure play, Westport.

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