- Price action favors natural gas over oil-based fuels.
- CLNE shares fell off the side of a cliff.
- A new partner, but the company has struggled to make money.
- Is CLNE a lotto ticket or a good buy at the current price level?
- Lots of announcements, but little gas in the tank for this stock.
The volatile natural gas futures market has traded in a range from just over $1 per MMBtu to over $15 since 1990. The last time the price of the energy commodity was over the $4 per MMBtu level was back in 2014. Since then, it has spent the vast majority of the time below the $3 level, and in March 2016 it fell to the lowest price since the late 1990s when it traded at $1.611 per MMBtu.
Massive reserves of natural gas in the Marcellus and Utica shale regions of the United States combined with technological advances in extraction via fracking have made the U.S. a natural gas powerhouse. The U.S. is home to quadrillions of cubic feet of reserves. The energy commodity has already stolen market share from coal as many power generation plants have moved to gas-fired electricity production. At the same time, advances in liquification of natural gas for transport by ocean vessel to other parts of the world where prices are higher has opened another demand vertical.
These days, there are more natural gas-powered heavy-duty vehicles in operation around the United States. These buses, trucks, and other modes of transport are the addressable market for the product offered by Clean Energy Fuels Corporation (NASDAQ:CLNE). However, as the market has grown, the price of the shares has moved lower to a point where CLNE is almost a penny stock these days.
Price action favors natural has over oil-based fuels
As the weekly chart of NYMEX crude oil futures highlights, the price has moved from lows of $26.05 per barrel in February 2016 to its current level at over $62 per barrel. More recently, the energy commodity has appreciated from $42.05 on June 21, 2017. Oil products, gasoline, and distillates have followed crude oil which has made the price of diesel fuel rise.
While natural gas futures on NYMEX have moved higher from their March 2016 low at $1.611, they are still historically low at the $2.70 per MMBtu level offering consumers a cheaper alternative for fuel. Therefore, demand for natural gas should be increasing which should improve demand for the products offered by CLNE.
CLNE shares fell off the side of a cliff
CLNE provides natural gas as an alternative fuel for vehicle fleets in the U.S. and Canada. The company supplies compressed natural gas (CNG), liquefied natural gas (LNG), and renewable natural gas (RNG) for light, medium, and heavy-duty vehicles. CLNE also designs, builds, operates, and maintains fueling stations. Given the price differential between oil-based fuels and natural gas, CLNE's business should be booming these days. However, the performance of the stock has been nothing short of awful.
As the chart illustrated, CLNE stock traded to a high of $24.75 per share in March 2012, and it has been all downhill since. On Monday, March 5, the stock was trading at $1.41 per share. The stock has been on a one-way street to the downside.
A new partner, but the company has struggled to make money
On February 21, 2018, CLNE and the Long Beach, Calif-based Harbor Trucking Association announced that the company is now the exclusive provider of cleaner fuels for the Association's 100-member trucking companies.
While the partnership is good news for the company, it has done little to improve the price of its stock. CLNE has been listed on the Nasdaq for over a decade, and it has struggled to make money. The company will announce earnings on March 13 and consensus estimates for the final quarter of 2017 are for a loss of 11 cents per share. CLNE continues to struggle to make money despite its presence in a market that should be expanding.
IS CLNE a lotto ticket or a good buy at the current price level?
CLNE had become a darling of the alternative energy investment market back in 2012 when the stock rose to its all-time peak price at $24.75 per share. However, poor economic performance in an industry that requires significant capital expenditures to expand business has choked the company's growth and prospects for earnings.
There continues to be a lot of action in the stock. The company has a market cap of $211.52 million as of March 5 and trades an average of over 1.27 million shares each day. Boone Pickens is the top shareholder with over 13 million shares, and institutional holders include an impressive group. Blackrock, Vanguard, State Street, Renaissance Technologies, Northern Trust, TIAA-CREF, D.E. Shaw, and Goldman Sachs are top holders of the shares.
The price action in the stock has been nothing short of lousy, but the stockholders give reason to pause and consider the risk/reward of a long position in this company at its current share price.
Lots of announcements but little gas in the tank for this stock
There has been a consistent stream of announcements about partnerships, technological victories, and positive news from the company over past years, but the stock's price continues to head south. Meanwhile, the impressive list of shareholders could mean that CLNE is a takeover candidate. The company could wind up the hands of a better-capitalized company with the financial means to take the business of supplying natural gas fuels to truckers to the next level. On its own, there appears to be little gas in the tank for CLNE at this time and another losing quarter could send the shares even lower. However, there is lots of financial talent involved in the company that could arrange a takeover that would make their investments look a lot better over the coming months. I think that CLNE could be a buy at its current price, but the upside appears to depend on an acquisition of the company to take some high-profile investors and institutions out of long positions that have been suffering over the past six years.
To me, CLNE is a lotto ticket that could pay off, and a 100% move is not out of the question. Based on the recent price action in the natural gas market, the upside potential for the company could be a lot more attractive than for the commodity.
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This article was written by
Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup.Over the past two decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities.
Andy understands the market in a way many traders can’t imagine. He’s booked vessels, armored cars, and trains to transport and store a broad range of commodities. And he’s worked directly with The United Nations and the legendary trading group Phibro.
Today, Andy remains in close contact with sources around the world and his network of traders.
“I have a vast Rolodex of information in my head… so many bull and bear markets. When something happens, I don’t have to think. I just react. History does tend to repeat itself over and over.”
His friends and mentors include highly regarded energy and precious metals traders, supply line specialists and international shipping companies that give him vast insight into the market.
Andy’s writing and analysis are on many market-based websites including CQG. Andy lectures at colleges and Universities. He also contributes to Traders Magazine. He consults for companies involved in producing and consuming commodities. Andy’s first book How to Make Money with Commodities, published by McGraw-Hill was released in 2013 and has received excellent reviews. Andy held a Series 3 and Series 30 license from the National Futures Association and a collaborator and strategist with hedge funds. Andy is the commodity expert for the website about.com and blogs on his own site dynamiccommodities.com. He is a frequent contributor on Stock News- https://stocknews.com/authors/?author=andrew-hecht
Analyst’s Disclosure: I/we 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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