How Natural Gas And Solar Panels Converge

by: Dana Blankenhorn

When prices are compressed, you want to be on the buy side of that market. In this, solar and natural gas are very similar.

For solar investors this means you are looking for investments tied to solar developers. That's why First Solar (NASDAQ:FSLR) has stayed afloat, despite its cost structure, while smaller companies with better cost structures have been left behind. FSLR was early into solar development, selling power in volume to companies like Mid-American, a unit of Berkshire-Hathaway (NYSE:BRK.A). So what you're looking for in the space are stories like this, a deal by FSLR to build 13 MW of solar power supply in Dubai.

The same is true in the natural gas business. You don't want to be on the side of a producer who is just flaring what it's finding because it can't get it to market. You want to be on the side of the natural gas buyer. You want to have a market, a connection to buyers and users, rather than being a producer of the stuff.

Some other SeekingAlpha writers are all over this. Bret Jensen likes Triangle Petroleum (NYSEMKT:TPLM), which has a joint venture to build a North Dakota pipeline. So do I. North Dakota is very anxious to get Bakken supplies now being flared to market, and the state has four pipeline projects on the drawing board. (For those buying the commodity, that means a lot more supply without drilling a single new well.)

Tactical Investor likes Energy Transfer Partners (NYSE:ETP), which moves and stores energy products. (So do I, although I have concerns about its structure, partnerships-within-partnerships.) EFS Investment likes Kinder Morgan Inc. (NYSE:KMI), the largest player in the pipeline space, and so do I.

But my personal favorite is Kinder Morgan Energy Partners (NYSE:KMP), owned by KMI's general partner. Its net for the most recent quarter is up 78% against KMI's gain of just 32%. Some analysts other than Tactical Investor see KMI as having a better outlook than KMP in the near term but KMP is throwing off more cash to shareholders. The current dividend adds up to a yield of 5.83%!

The point is that in both these industries, which are in glut, you want to be on the side of the trade that has sales, power in the case of solar, gas in the case of natural gas. Until natural gas prices rise significantly, play the pipelines.

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.