Clean Energy Fuels Bears Don't Get It

| About: Clean Energy (CLNE)

Two weeks ago, Jim Cramer, in his Mad Money TV program, gave a bearish call on Clean Energy Fuel Corp (NASDAQ:CLNE). He said:

"It is not doing well, because no one in Washington wants to do anything about having natural gas as a regular fuel. So it is just a spec."

However, I do not agree with this statement. Nor do I understand why 32% of the total float has been shorted.

In my previous article on CLNE, I wrote how I believe that CLNE has bottomed out.

The Natural Gas Industry Dynamics

The natural gas (NG) industry has been a 'victim' of the 'chicken or egg' issue. No one is willing to take the first step to bring a change in this industry. The industry players currently form a triangle. On the three nodes, we have the OEMs, the fuel providers and most important of all, the users of the natural-gas vehicles (NGV).

The fuel providers are not working on development of the fueling infrastructure for the NGVs. The final consumer on the other hand, is not buying an NGV as he/she does not want to end up in the middle of a highway with an empty fuel tank and therefore is waiting for a proper infrastructure to be laid out. The third stakeholder group i.e. the OEMs are not employing their resources to produce NGVs given a poor demand. Yet the NG economics are so compelling that the market keeps on talking about the natural gas adoption rate and is taking a deep interest in the natural gas stocks. Perhaps, this is why you are also reading this article!

Why I disagree with the bears?

CLNE has been an exception in this case. It "did not wait for things to happen. It made things happen." The largest provider of natural gas fuel for transportation in the U.S. has been actively working to build a natural gas fueling infrastructure in the U.S. The company aims to build 70 fueling stations in CY 2012 and 80 stations in the next year.

The bears were shocked to hear from CLNE on the natural gas summit that the company had already completed the first stage of its nationwide network of NG LNG fueling stations for long-haul, heavy-duty freight trucking. The CEO of CLNE, Andrew Littlefair was heard saying:

"We have created America's Natural Gas Highway to support the growing number of long-haul truckers and shippers who are deploying factory-built, heavy-duty trucks powered by natural gas fuel. LNG-fueled trucks can now travel the country and reap the benefits of fuel cost savings, reduced dependence on foreign oil, and the lower emissions profile that characterizes this abundant American resource."

CLNE and many other players in the NG industry believe that this industry does not need the State's help to grow. They believe that the economics are on their side. Currently, around $1.50 per gallon can be saved by the truck users by switching from diesel/gasoline to natural gas. Therefore, the NG industry does not require the State to provide incentives to the NG users.

Also, it is absolutely wrong to claim that the State is not doing anything to promote the usage of NG. I have two examples to quote that suggest that the State is playing a vital role in spreading the usage of NG:

1) Under the Corporate Average Fuel Economy (CAFÉ) rules for 2017 to 2025, the automakers will have to reach average fuel economy of 54.5 miles per gallon (MPG) by 2025. Under this law, the NG vehicle sellers will be awarded with extra incentive credits.

2) The Governors of 22 States are actively converting their State fleets to compressed natural gas (CNG)

Therefore, in the light of the above-mentioned points, I believe that Cramer's point of view is not valid.

Valuations and Conclusion

Currently 32% of the stock's total float has been shorted. CLNE is a pure play on the NG adoption rate. A higher NG adoption rate is expected to drive up the stock's price. The stock has been shorted in large quantities because the bears believe that the NG adoption rate will not improve in the near-future given the 'chicken or egg' issue (as mentioned above). However, CLNE's recent announcement of successfully completing the first phase of the fueling infrastructural development has sent bullish signals to the market and has clearly falsified bears' claims.

I recommend the stock as a buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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