Profiting from the Pickens Plan: FAN, Clean Fuels, Fuel Systems

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Includes: CLNE, FAN, FSYS
by: Tate Dwinnell

As many of you probably know, oil speculator extraordinaire T Boone Pickens has a plan, a plan to save the world from itself in the form of clean energy (well sorta, more on that later).  Mr. Pickens, I applaud you for your efforts and for stepping up at a time when government agrees to disagree on just about every issue including investments in green energy solutions.

The Pickens Plan was announced a few days ago and its aim is simple, at least on paper.  Decrease our dependence on foreign oil and do it now with the use of wind power and powering vehicles with natural gas, both of which Pickens claims is abundant in our backyard. Pickens calls the US "The Saudi Arabia of Wind Power" and bases that statement on the fact that studies from around the world show that the Great Plains states are home to the greatest wind energy potential in the world, with North Dakota having the potential to power more than a quarter of the country.  Will wind power be to North Dakota what oil has been to Dubai?  Uh, no ... but if Pickens has his way and the government cooperates, wind power barons might just replace the farmers of America.  Pickens says his plan won't interfere with farming and grazing, and that could certainly be possible but I can't imagine it will be all that easy logistically.   

tboonepickensThe 2nd part of the Pickens Plan calls for the use of natural gas as the primary fuel for our  transportation needs.  According to the California Energy Commission, natural gas greenhouse emissions are 23% lower than diesel and 30% lower than gasoline and according to Pickens comes with a much lower price tag of under $1/gallon in places like Utah and Oklahoma.  Unfortunately the infrastructure isn't in place to make this feasible for most people and the $1/gallon is the exception to the rule.  I just checked out a map of natural gas fueling stations around Portland, Oregon and the nearest station is a solid hour away out in the boondocks!  The price: $2.53 gallon.  Not exactly a buck a gallon.  If this plan gains a footing (only 150,000 vehicles in US currently use natural gas) expect those prices to come more in line with what we're paying at the pump now. 

His natural gas transportation plan just doesn't make much sense to me in terms of cost and environmental impact,  but we have to remember that Pickens is a businessman first and the added benefit to the environment would just be icing on the cake.  He did tell the Guardian in April "Don't get the idea that I've turned green.  My business is making money and I think this is going to make a lot of money" (referring to his wind power investments).  There's also the bit about him not putting any wind turbines on his 68,000 acre ranch but preferring to pay royalties to other Texas ranchers (a farmer who gives up a quarter of an acre to a wind farm can earn $10,000 a year from it – some 3 per cent of the value of the electricity it produces. If he planted corn for ethanol he would earn $300).  Kids, pack your bags, we're moving to Sweetwater Texas to build a windfarm! 

I still think that electric cars or a hybrid/electric is the best approach, but many think that electric cars are a bit of a pipe dream and that the battery technology will never allow for 100% electric cars, but this is where the research money should go.  Is natural gas a better approach?  In my opinion, converting infrastructure for natural gas fueling stations is a BIG mistake.    The plan is to harness the power of the wind to generate electricity, which frees up the natural gas for our transportation needs, but last time I checked natural gas is still a scarce resource and emissions are ONLY 30% less.. cleaner but far from clean.

At any rate, while the plan has some problems (yeah most plans do) I do applaud Pickens for having a plan rooted in some reality… and it does create discussion, awareness and ideas for change.  Long Pickens, short Al Gore. 

Now that the rambling out of me is done, let's get into some profitable ideas that may emerge from the Pickens Plan.  Focusing on Wind and Natural Gas transportation there are a few that I can think of, but hopefully this post will bring out the creative genius in some of you and yield a few more ideas.  Here's my take:

There are few, if any pure wind play opportunities out there.  Most of them are overseas, but you're in luck because two Wind ETFs just launched providing diversified exposure to global wind energy companies and I prefer the First Trust Global Wind Energy ETF (NYSEARCA:FAN).  It's only been trading a month and as you can see it's been mostly down.  In fact most clean energy funds are down big over the past several months and I think that provides a fantastic opportunity for the patient investor over the long haul.  FAN is carving out a large base currently and I'm waiting for it to continue carving out a bottom, then stage some kind of breakout from a cup or double bottom base, although may add an initial small position if it comes back into the 27 range.

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My second trade idea for profiting from the Pickens Plan happens to be on the short  side, in Fuel Systems Solutions (NASDAQ:FSYS).  This is a company that provides the necessary components for a car to run on natural gas, so if the Pickens Plan proliferates, FSYS stands to benefit in a big way.  Ah, but there is a problem.  Not in the company itself.  This is a company that has seen a huge surge in revenue and profit as overseas customers convert their vehicles to the cheaper natural gas fuel. If that trend catches on in the US, expect FSYS to continue to profit big.  However, this is a stock that has quadrupled in just a few months and from a technical standpoint, this is a mighty bearish looking double top (full disclosure: yes I am short on this).  It's a short right here with a stop above 42.50.  If it fills the gap around 20, I'm a believer on the long side in this Pickens Plan play.

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The other play in this space is Clean Energy Fuels (NASDAQ:CLNE), which happens to be controlled by… you guessed it,  Mr. Pickens!  See, he really does have a plan and it includes profits.  CLNE provides compressed natural gas [CNG] and liquefied natural gas [LNG] for use in vehicles.  Where FSYS provides the conversion, CLNE is there with the fuel.  Some kind of relationship between the two companies seems likely at some point, but that's for another article. 

This is a stock that has run up 40% in the past month right into major resistance (much of  that after the Pickens Plan was announced).  Wait for the euphoria to wear off and the stock to come back to earth for a longer term play or trade the breakout once it clears the downtrend above 14.

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