Cramer's Mad Money - The Most Speculative Way to Play Natural Gas (1/4/10)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Monday January 4.

The Most Speculative Natural Gas Play: Westport Innovations (NASDAQ:WPRT)

"The single most speculative way to play natural gas" is not with a company that drills for the fuel, but one that produces engines that run on natural gas and develops technologies that allow existing engines to use the cleaner fuel. Given the growing interest in natural gas, equipment that will run on the fuel will become indispensable. The U.S. is lagging behind the rest of the world in creating this technology; currently 85% of Westport International's (WPRT) sales are from North America, so growth in this industry will make a significant impact on the company.

Westport is expanding its foothold overseas and is selling to 50 vehicle manufacturers in 19 countries. While there is ample opportunity for growth, Westport does carry significant risk; It lost 28 cents a share last quarter and is heavily dependent on strategic partnerships. A failure to meet estimates may require raising capital. "The underlying long-term story here could be incredible," said Cramer, while warning investors again about the risks; "I want to emphasize the word 'could'."

Better than Bonds: Kinder Morgan Energy Partners (NYSE:KMP), AT&T (NYSE:T), Consolidated Edison (NYSE:ED), Powershares Financial Preferred Portfolio (NYSEARCA:PGF), Caterpillar (NYSE:CAT), BHP Billiton (NYSE:BHP), Nucor (NYSE:NUE)

Cramer thinks it is "nuts" that between January and November of 2009, $30 billion went out of stocks and $349 billion went into bonds, while the Dow rose from 6,000 in March to 10,000 in October. He doesn't see why investors would flock to bonds, which lack the tax advantages of high-yielding stocks and offer little growth potential. For safe investments with high yields, Cramer would look to Consolidated Edison (ED), Kinder Morgan Energy Partners (KMP), AT&T (T), Powershares Preferred Portfolio (PGF); “If you’re looking for income,” Cramer said, “you want these names, not bonds.”

Cramer also criticized passive investing and the practice of dumping money into an index fund for retirement and just letting it sit. Since the S&P 500 is down 24% for the last decade, an investor can't just sit back and let the market ride, but should create wealth through active investing with a diversified portfolio. Finally, Cramer cited Monday's positive action in "recovery" stocks BHP Billtion (BHP), Caterpillar (CAT) and Nucor (NUE) as a signal of a greater trend toward economic strength in 2010.

2010 Theme: Natural Gas: Baker Hughes (NYSE:BHI), Weatherford International (NYSE:WFT), Marathon Oil (NYSE:MRO), Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM), XTO Energy (XTO), Total (NYSE:TOT), Chesapeake (NYSE:CHK), Devon Energy (NYSE:DVN), Southwestern (NYSE:SWN), Ultra Petroleum (UPL), Apache (NYSE:APA), EQT (NYSE:EQT), Continental Resources (NYSE:CLR), Range Resources (NYSE:RRC), Linn Energy (LINE)

Cramer dedicated a segment a day for the first week of 2010 to discussing themes for the new year, and began with natural gas. The Mad Money host has made no secret of the fact that he views natural gas as a perfect bridge fuel and a cleaner and cheaper alternative to fossil fuels. The global recovery will make gas shortages and high oil prices more severe, thanks to increased consumption. This will be good news for oil companies Baker Hughes (BHI), Weatherford International (WFT), Marathon Oil (MRO) and Chevron (CVX), although the real story is about natural gas. Exxon Mobil's (XOM) buyout of XTO Energy (XTO) and Total's (TOT) purchase of 25% of Chesapeake's (CHK) Barnett shale demonstrate increasing interest in the commodity.

Cramer likes a variety of natural gas stocks, including: Chesapeake, Devon Energy (DVN), Southwestern (SWN), Ultra Petroleum (UPL), Apache (APA), EQT (EQT), Continental Resources (CLR) and Range Resources (RR). The one natural gas stock Cramer would avoid is Linn Energy (LINE). Although the stock has nice 9% dividend, it has already run 70% since May and doesn't seem to have more upside.


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