natural gas fill upBy Dan Caplinger,The Motley Fool

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Clean Energy Fuels (CLNE) fits the bill.

The Quest for Perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:
  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Clean Energy Fuels.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 22.1% Pass
1-Year Revenue Growth > 12% 61.1% Pass
Margins Gross Margin > 35% 33.0% Fail
Net Margin > 15% (1.2%) Fail
Balance Sheet Debt to Equity < 50% 15.5% Pass
Current Ratio > 1.3 1.67 Pass
Opportunities Return on Equity > 15% (0.8%) Fail
Valuation Normalized P/E < 20 NM NM
Dividends Current Yield > 2% 0.0% Fail
5-Year Dividend Growth > 10% 0.0% Fail
Total Score 4 out of 9

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

With just four points, Clean Energy Fuels isn't close to perfection. But the young energy company has a lot of potential, and with a boost from recent government initiatives, that potential could turn into profit in the years to come.

In a world with $100 oil, companies like Clean Energy Fuels have never had a better environment in which to take off. Clean Energy Fuels is tied into a key element of the nation's energy policy, setting up a network of natural gas fueling stations to encourage greater use of natural gas-burning vehicles.

The company knows, however, that it needs to work with others to make its plan a reality. With a partnership with truck-stop operator Pilot Flying J, the company could have stations around the country soon. And Clean Energy Fuels recently signed an agreement with UPS (UPS) to fuel a small fleet of liquefied natural gas trucks in Las Vegas.

The problem for investors is that small companies have to resort to desperate measures when raising capital. Like Westport Innovations (WPRT) and Fuel Systems Solutions (FSYS) , Clean Energy Fuels has to make secondary offerings of stock to raise cash from time to time, diluting existing shareholders. That doesn't make the stock a bad investment, but it does potentially limit its upside.

After a speech from President Obama earlier this month, Clean Energy Fuels is riding high on optimism about alternative fuels. But this isn't the first time the country has committed to moving away from gasoline only to reverse course back to the status quo. Until natural gas becomes a sure thing, Clean Energy Fuels won't be the perfect stock.

Fool contributor
Dan Caplinger doesn't own shares of the companies mentioned in this article. Westport Innovations is a Motley Fool Stock Advisor selection. The Fool owns shares of United Parcel Service. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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The world's largest publicly traded company on Thursday reported net income of $10.65 billion, or $2.14 per share, in the first three months of the year. That compares with $6.3 billion, or 1.33 per share a year ago. Revenue increased 26 percent to $114 billion.

The results surpassed Wall Street estimates of $2.04 per share on sales of $112.6 billion, according to FactSet.

The quarter was Exxon's best since it earned a record $14.83 billion in 2008's third quarter. It comes at a time when some drivers are paying $4 or more for gas and President Obama is threatening the oil industry's multibillion-dollar tax subsidies.

Earnings grew across the company's business segments. Income from its exploration and production business gained 49 percent to $8.7 billion while the company's downstream business, which includes refineries, posted a huge 30-fold jump to more than $1.1 billion.

Anticipating a strong reaction to the results from drivers and politicians, Exxon said on a company blog Wednesday that it has little control over the price of oil, which has risen to near $113 per barrel. The company also noted that less than 3 cents of every dollar it earns comes from the sale of gasoline and diesel fuel.

Now, are you still going to blame the Middle East?


April 29 2011 at 6:36 AM Report abuse rate up rate down Reply

Many companies are waiting for washington to pass legislation - the energy bill. And last year republicans refused to attend the meetings - I watched on cspan - not one republican showed up. Now where are we with higher gas prices? Many trying to blame it on Obama when it's the gop who likes it this way - wall street and big oil making record profits.

April 26 2011 at 9:38 PM Report abuse +1 rate up rate down Reply