Green Chip: “Clean Air Cash-Outs — $1.6 billion Clean Truck Superfund”

By Travis Johnson, Stock Gumshoe, March 25, 2008

Here we have another newsletter from the folks who brought us Green Chip Stocks, which has been riding herd on the wave of environmentally friendly investors with a near-constant stream of new teaser ads.

This latest ad, from Jeff Siegel for the new service, talks about “clean air cash-outs”, which as I read it are just the money making opportunities of the greenification of Wall Street. He adds some cynicism, talking about the fact that these clean air changes and innovations pushed by businesses are really designed to grow profits, not to clean the air (though they may do that, too). I don’t expect any of the wise, jaded and clear-thinking Gumshoe readers are surprised to hear that.

We hear nearly every day about investment opportunities that should allow you to make millions on the back of new government regulations, carbon limits or trading, high oil prices, or consumer demand for Green. So what do we have this time, and is it worth a second look?

The name of the special report they’ll send you for subscribing to the service is “I-LNG: California’s Hottest Clean-Air Cash-Out.” The newsletter they want you to subscribe to is Alternative Energy Speculator, by Jeff Siegel and Nick Hodges — apparently they’re launching with a “special deal” at $199 for subscribers, but the “normal” price will be $499. You might recognize those names from Green Chip Stocks, which is their “greener” and cheaper newsletter — apparently this new Alternative Energy Speculator service is for “stopgap” investments that help develop energy independence and reduce pollution or fuel use, but that are potentially more explosive and aren’t necessarily really specifically “green” or renewable energy.

This time we’re talking about an interesting little niche in the world of alternative fuel vehicles — trucking. Specifically, the teaser talks about Southern California, and the fact that the smog and emisions are so bad from the massive trucks that ply the port areas of Long Beach and Los Angeles (mostly taking containers from the ports to their destination, but also moving stuff around within the ports), that they insituted significant new emissions reductions for these large truck fleets.

And to coincide with these new emissions standards, they realized that to just do away with the trucks would choke the ports, which are already at capacity, so they also passed a $1.6 billion government “superfund” to help replace these truck fleets.

This teaser company is the one who makes the engines (or modifies them, really), to let them run on LNG. That’s liquid natural gas. So yes, it’s not like the trucks will run on solar power or be a fleet of giant Toyota Prius clones, they’re still using fossil fuel, but natural gas burns so much more cleanly that diesel or gasoline that the hope is that this can dramatically reduce the southern California smog.

So … what are we dealing with?

Well, the Thinkolator is on the case … and I can tell you that the truck that’s being aimed squarely at this new fleet revitalization is probably either the Kenworth T800 or the Peterbilt 386. But Green Chip is talking about a tiny company, and I’m sure they don’t want you to buy PACCAR (parent of both Kenworth and Peterbilt) — though that may be a good pick, too, and I know they’ve been recommended by Motley Fool’s Stock Advisor in the past and the company is pretty cheap and has a good reputation for innovation.

No, what we’re looking at here is the engine company, not the truck maker. And the company that’s being teased here is …

Westport Innovations (WPIVF on the pink sheets, WPT for the main listing in Toronto)

This is a company that has developed a LNG modification, called HPDI, for a Cummins engine, and it does have an exclusive deal with PACCAR to sell these trucks. And from what I can see, they aren’t just blowing smoke about this being the only truck that’s approved for this $1.6 billion superfund for fleet replacement. I don’t know how long it will remain the only truck, but it certainly seems likely that they’ll get a lot of orders for this. Westport is itself specifically focused on this niche, developing engines for all kinds of alternative fuels, from LNG and CNG to biofuels and probably other funky stuff that we haven’t even thought of yet.

They also tease that other folks are testing these trucks, too — Wal Mart is testing four of them (the Peterbilts, in their case), and they’re being tested in Australia and elsewhere (Australia is probably the only country with as much of a trucking culture and dependency as the U.S.) This is all true, Wal Mart is doing their testing in the Southwest, if that matters to you.

The company is priced right around $3, and it did have a nice bounce of 25% or so on the news of that government fund — but that was really just to allow them to recover from a collapse at the beginning of the year. The shares traded more or less between $2-3 for much of the past year, and are now near the top of that range near their all-time highs. The company is worth a little less than $300 million and has fairly low trading volume, so you might wish to be patient if you decide you’re interested in buying shares — it can move around quite a bit with even a modicum of investor interest.

Our friend T. Boone Pickens is also a major shareholder of Westport, he holds more than 10% of the stock as of the last filing I saw. This fits in with his general interest in natural gas, since he really believes NG in some iteration will be the transportation fuel of the future for the U.S. (we saw this most recently with an Energy and Capital teaser for one of his other favorites back in January).

The company did just turn a profit of a few cents a share, so that’s nice, and if all those orders for fleet revitalization really materialize and they are able to expand and take market share in the U.S. truck fleet there’s certainly some potential here over the long term, assuming you believe that we’ll continue to see more LNG fueling stations built around the country, albeit at the current slow pace.

There are certainly orders coming in — there’s an announcement here about the most recent one, $4 million for 50 trucks — I read that as being that the $4 million is Westport’s share, so that’s about $80,ooo for the engine and fuel system for each truck. I have no idea how that compares with a standard 15 liter diesel engine for these monster trucks. I have no idea how much these trucks cost, either.

So … this is where I hand it off to you, the wise, insightful, and handsomely dressed Gumshoe reader — is this opportunity compelling enough to buy a marginally profitable small company? Are there better “stop-gap” measures for reducing particulate emissions and making trucks more efficient? If California is spending $1.6 billion on these new and retrofitted trucks and no one else makes an approved engine for this program, how much of that money will go to just these engines/fuel systems and therefore to Westport? How many would they have to sell on a regular basis to become consistently profitable? Might PACCAR, Volvo or Cummins just buy the company? I don’t have the answers, but I will admit to being intrigued by this one — it’s hard to resist real orders and cash flow, though there’s probably a catch somewhere.

full disclosure: I do not own any company mentioned here, and won’t trade in any of them for at least three days.

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