Playing the new energy boom isn’t as easy as it might seem. A growing company like Heckmann Corporation (NYSE/HEK), which is moving water for fracking (a natural gas or oil extraction method), is having a tough time on the stock market.
Heckmann is expected to more than double its revenues this year, and earnings are expected to triple. But it might be hard to make this happen, as the company has a lot of debt; I think that’s what’s holding the position down on the stock market.
One very interesting company that’s a play on the natural gas build-out is Chart Industries, Inc. (NASDAQ/GTLS), out of Garfield, Ohio. Its next earnings report is set for April 22. Even if earnings don’t beat the Street this quarter, Chart Industries still has a very bright future.
Chart Industries is a multiyear play on natural gas, industrial gases, and storage. The company’s stock market cap sits at $2.3 billion, but I think it has great potential to grow throughout the rest of this decade.
The company has global expertise in manufacturing equipment for the storage of hydrocarbon and industrial gases. It sells to customers in energy and chemicals, industrial gases, and biomedical applications.
On the stock market, Chart Industries traded range-bound for all of last year, even though the company’s earnings growth was very good.
But since listing on the NASDAQ, the stock has done very well (excluding the financial crisis), and the company’s growth has been impressive.
Chart courtesy of www.StockCharts.com
According to the company, its 2012 fourth-quarter revenues grew 38%, to $303.9 million, compared to the same quarter in 2011. Fourth-quarter 2012 earnings were $20.8 million, or $0.69 per diluted share, compared to fourth-quarter 2011 earnings of $8.4 million, or $0.28 per diluted share. Earnings would have been considerably higher if not for a recent acquisition.
The company’s backlog at the end of 2012 was $617.4 million, up 26% from 2011. Chart Industries was just awarded a $40.0-million contract to provide liquefied natural gas (LNG) equipment to PetroChina Company Limited (NYSE/PTR), a customer with a very big wallet.
The natural gas build-out is a stock market investment theme that’s worth paying attention to. But it’s going to be a slow process. There is a glut of natural gas and oil due to the resurgence of U.S. production, infrastructure plays are expensive, and the regulatory process takes time. (See “Great Old Economy Business That Isn’t Full of Hot Air.”)
One stock market winner related to natural gas is Cabot Oil & Gas Corporation (NYSE/COG). It quadrupled over the last two years. The company is a natural gas producer, but it also provides storage solutions for resale.
Big oil is still a great way to play the U.S. energy boom. The stock market performance and earnings results of Chevron Corporation (NYSE/CVX) are very good.
Natural gas prices have bounced off their lows, but it’s unlikely that they will really accelerate with the huge new production taking place. I think one of the best ways for stock market investors to play this investment theme is in storage and distribution. All those hydrocarbons have to go somewhere.