“Soros and Pickens are about to make $2.3 billion on this ‘Future Fuel’ company” (Alternative Energy Speculator)

By Travis Johnson, Stock Gumshoe, June 24, 2010

Here’s the pitch for the ad I’m looking at this morning:

“At the equivalent of $1.50 per gallon, the ‘fuel of the future’ is over 50% cheaper than diesel. And it’s many times safer, cleaner, and more environmentally friendly…

“But what only a few people know — the rich, connected people, like Pickens and Soros — is that the transition to this fuel has already begun…

“Across the nation, multi-billion dollar companies from Wal-Mart to Volvo to Peterbilt are switching the engines of their trucking fleets to run on a fuel that produces practically zero particle emissions and half the CO2 emissions that coal and oil produce.

“With over 7,000 trucks in their fleet, Wal-Mart alone is expected to save over $300 million by switching to this fuel.

“It’s so cheap and abundant that the cities of Los Angeles and Atlantic City are switching their trucks and buses to run on it — and they’re just the first of many major cities.”

Sounds exciting, right? Nick Hodge and the folks at Alternative Energy Speculator are telling us that they’ve got the stock to benefit from this trend … which is, they later make clear, the movement to use natural gas as a transportation fuel. And as you can imagine from the intro to the tease above, this is about natural gas as a fuel for heavy trucks.

Which means that longtime Gumshoe readers may already know our answer … but let’s read on, shall we?

Part of the pitch is that you’d be getting on board with George Soros and T. Boone Pickens, celebrity investors both …

“… we’ve been following one particular company that has been drawing notice — and a lot of investment — from some pretty big names…

“This company makes state-of-the-art engines that run on this ‘future fuel.’ And it’s already got contracts in place to convert the trucking fleets of Wal-Mart and other major clients to run on this clean, abundant $1.50-per-gallon wonder fuel.

“It’s also contracted with major truck-makers Peterbilt and Volvo to supply these “future fuel” engines as original equipment…

“Infamous billionaire speculator George Soros just bought more than 2 million shares and T. Boone Pickens already owns nearly 5 million shares…

“Not to mention that a major owner of the company has snapped up over 1.1 million shares on the open market since mid-February alone.

“When you get insider trading at that volume, it means only one thing: Those executives know something the analysts don’t.

“When company bigwigs who already own millions of shares start buying up more of their own stock on the open market, it’s because they know the price is going to explode…

“For the last 7 years, this company has grown by double digits…

“In 2008-2009 alone — during one of the worst recessions in American history, mind you — it grew over 60%…”

The ad goes on to talk about the big demand for cleaner trucks, particularly in port cities like L.A., and the nationwide push to clean up the huge, dirty diesel trucks that service those ports. L.A. has been the forerunner in the port pollution fight, though, here’s what they say about it in the ad:

“L.A.’s plan is to require all of these port-bound trucks to adhere to extremely strict emission standards so that the city will no longer look like it’s been sitting at the bottom of an ashtray for the past 20 years.

“Now here’s the part that’s of interest to investors like Soros and Pickens… L.A.’s plan gives incentives for truck fleet owners to switch to natural gas and other alt-fuel engines in order to reduce the pollution that the trucks give off…

“Which plays right into the hands of the company I’ve been telling you about.

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“It would not surprise me one bit to learn that the reason company insiders, hedge funds, and in-the-know billionaires are loading up on this stock right now is that some hefty contracts with L.A.-based trucking companies are close to being inked.”

And there’s one other leg to the stool for this one — first we’ve got big insider buying, second we’ve got a push from the EPA and port cities to clean up their air and a subsidized move from large trucking fleets to cut emissions, and third … cost savings.

You’ve probably noticed that natural gas is still pretty cheap compared to oil (the ratio of the price of oil/gas has historically been in the neighborhood of 10, ranging usually from 8-12 or so, and it spiked to 25 or so when gas collapsed but is still high at about 15). This helps to urge truck fleet owners to invest in upgrades to natural gas engines, since fuel is such a massive portion of their expenses — so if natural gas is likely to still be cheaper than diesel fuel per mile traveled in the future, that can be a compelling argument.

And then they throw in just a bit more specific teasing about the stock:

“The world’s top 4 truck producers are nipping at the heels of this engine maker

“Truck and bus makers Daimler, Volvo, Dongfeng, and Tata are all supplied with LNG engines by this one particular company…

“Not to mention its partnerships with Weichai and Cummins — the #1 and #4 top engine manufacturers in the world.

“The company is producing equipment for everything from forklifts to high-horsepower, 16+ liter mega dump trucks.

“Even in the economic recession of the past two years, this outfit managed to create hundreds of LNG gas vehicles, bringing investors over 200% returns in the process…

“The company has over 9 years and $200 million invested in this technology — and their profits have been increasing for the past four years while big-name vehicle manufactures like GM and Chrysler were struggling just to cover their overhead.

“This outfit has 65 U.S. patents to their name, and has made several social and environmental lists across North America for their contributions to promoting clean fuel.

“So no matter which way you look at it, the ability for this company to achieve gains of over 1,925% is practically guaranteed.”

So I should just let you out of our misery, right? This stock is … Westport Innovations (WPRT)

And though Pickens was a major backer of both WPRT and their partner company Clean Energy Fuels (CLNE) (Westport makes the truck engines, Clean Energy builds and runs the nat gas fueling stations), It doesn’t look like he’s still an owner — recent filings do show major accumulation of the shares from “beneficial owner” Kevin Douglas, who’s another big investor and the guy who’s been buying shares like crazy this year, and George Soros’ fund has invested pretty heavily in WPRT with a near 5% stake, but it looks, at least on the surface, like Pickens is out. He is still on the board at Clean Energy Fuels and owns a big stake there, and of course he’s still out chattering about his “Pickens Plan” for using natural gas in transportation to anyone who will listen, though that advertising campaign seems to have run its course.

I also wrote about WPRT way back in 2008 for previous Alternative Energy Speculator teasers, one called “Clean-Energy Cash-Outs” and a follow-up that was tied closely to the “Pickens Plan,” and later that year featured them as one of the first stocks for my “Idea of the Month” writeups on the Irregulars site.

Westport is a technology company that has been morphing into an engine maker in recent years, turning their patents and research into alternative fuel engines (mostly natural gas and hydrogen) into a viable manufacturing business — first in partnership with Cummins, with whom they share the Cummins Westport business that builds engines for fleet trucks (garbage trucks, buses, etc.) and has great global sales, and now in partnership with big truck makers, some through Cummins for the somewhat lighter-duty trucks, some with their new Westport HD (heavy duty) division that’s working on a Weichai/Westport development deal somewhat like Cummins Westport and also working with Volvo, Kenworth and Peterbilt.

Though Cummins Westport has been consistently profitable for years, and I’d buy that company in a second if it were separately traded, the claim to investor attention in recent years has largely been the heavy duty truck segment — the appeal of getting port drayage trucks converted is great, since there are thousands of them and they’re largely short-haul trucks for whom the lack of natural gas infrastructure (gas stations) is not a big impediment, but the long-term promise is the conversion of the massive highway fleet.

I would personally have been scared out of the shares by California’s budget problems, because WPRT at the time was almost entirely dependent for revenue on the clean trucks program at the Port of Long Beach going through and making a big sales impact — and I thought the state might have to cut back on the huge subsidies that make truck conversion appealing for fleet owners, and that the fleets would more likely invest in less expensive options for cleaner emissions (the additional cost for adding Westport LNG injectors and fuels systems to a truck is close to $80,000, almost doubling the cost of the truck). Still, the shares have done better than I expected coming off the bottom … and though I haven’t looked at the stock very closely in recent months, I do still like the idea, I still love their joint ventures (Cummins Westport and now Weichai Westport, where they can get good distribution and manufacturing capability with limited investment), but it does still seem that the biggest opportunity and risk is the heavy duty segment, where they’re still investing and are not yet showing a profit.

Will that turn around in the years to come? Well, if they can maintain some technological advantage and the gasification of the truck fleet does move forward with large subsidies and the infrastructure is built out to fuel them, I imagine the future still looks pretty bright — but they’re not profitable now, and are unlikely to become so anytime soon (analysts had been predicting a profit in the 2012 FY, ending in March 2012, but after recent data releases they’ve switched that back to a loss of 12 cents a share two years from now. That’s not shocking for what is still a pretty early-stage company, at least in terms of size and product rollout, but it is unfortunately somewhat consistent with the Westport of two years ago — the optimism for a nice income statement has seemed for some time to be “a couple years away,” I hope that it doesn’t remain there.

Are you a WPRT shareholder, or otherwise have an opinion about Westport, natural gas engines and the “Champagne of Fuels”, or, for that matter, T. Boone Pickens and his “Pickens Plan?” Let us know with a comment below — thanks!


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