Is This Westport Insider Telling You to Buy?
Jul 31st 2012 10:42AM
Updated Jul 31st 2012 10:48AM
Famed money manager Peter Lynch told us executives can sell their stock for any reason, but typically buy only for one: They think the price is going to go up!
Today I'm highlighting Westport Innovations (NAS: WPRT) , a maker of natural gas engines that saw 10% owner Kevin Douglas purchase more than $27 million worth of stock recently. These aren't option grants, but rather someone who is putting his own money on the line, buying shares at market prices just like you and me.
Although following the lead of insiders can be profitable, I still recommend you do further due diligence to determine whether this stock would make a good addition to your own portfolio. So this isn't a call to buy, but just the inside track on a company you might want to check out further.
Putting your money where your mouth is
There's something to be said for the way Douglas invests in a company: he buys a huge chunk of stock and then he keeps on buying. Notably he's bought gobs and gobs of American Superconductor stock; he owns a good chunk of big-screen movie chain IMAX; and he's taken sizable (winning) positions in Monster Beverage back when it was Hansen Naturals.
But lately his interests have been piqued by natural-gas-powered automobile engines. After establishing his original stakes in Westport as early as 2010, throughout the month of July Douglas was making sizable investments again, buying tens of millions of dollars worth of its shares. And not one to hedge his bets, he's also buying up large tranches of Fuel Systems Solutions (NAS: FSYS) , purchasing $1.1 million shares worth last week (earlier this year he plunked down $10 million or so on it).
With the country awash in natural gas inventories and it being a plentiful resource found here at home, the dynamics of the industry make it likely it can be a viable alternative fuel, certainly more so to my thinking than other sources such as the cellulose biomass pedaled by the likes of Solazyme or KiOR. Unlike those sources of fuel, the means for developing natural gas is already well established, and companies like Clean Energy Fuels (NAS: CLNE) are building out the infrastructure necessary to make it more accessible.
A network of connections
Significantly, Westport has key partnerships already in place to make it happen, too. There is, of course, the partnership with traditional engine maker Cummins (NYS: CMI) , but Westport is also working with Caterpillar (NYS: CAT) to build out natural gas technology for off-road equipment, including mining trucks and even locomotives. The opportunity appears so large that Cummins is actually striking out on its own to build its own version of natural gas engines. That will mean more competition, but it also suggests the market is large enough to support additional rivals.
CAPS member bIlluminati points out the near-term risks that lower oil prices will push out the horizon for widespread adoption of nat gas engines, but there's a longer road Westport -- and Douglas! -- are traveling here that I think will eventually pay off.
Beyond the cost of oil, there are still hurdles to surmount. Tax policy is one, where natural gas vehicles are penalized, making it less economical to operate an liquid-nat-gas-powered vehicle than a diesel-powered one. The American Gas Association says NGVs incur a $0.41 per diesel gallon equivalent gas tax rate compared to just $0.24 per gallon for diesel engines. While compressed natural gas doesn't carry that penalty, LNG does. That adds $30,000 to $60,000 to the cost of running an NGV compared to a diesel truck.
And while there are some 1,000 NG refueling stations nationwide, only half of them are open to the public. To be viable, there would need to be somewhere around 15,000 to 30,000 stations available to the public (sounds like a growth opportunity for Clean Energy Fuels!).
Others contend that as plentiful as natural gas is, there's not nearly enough to supply even a large fraction of transportation needs, let alone that required by expanding usage elsewhere.
A niche player?
So is natural gas as a fuel destined for a limited future, with Westport stuck making engines for niche industries like forklifts, or are critics just not seeing a big enough picture? Let me know on the Westport Innovations CAPS page or in the comments section below if you think Kevin Douglas might have better insight into its future.
On the inside track
In the meantime, I urge you to download The Motley Fool's newest special free report, "The Only Energy Stock You'll Ever Need," which offers up a company you may not have considered should there be a new spike in the price of oil. The one in 2008 took many investors by surprise, but you'll be prepared for the next one with this well-positioned energy stock. Download your copy now, for free.
The article Is This Westport Insider Telling You to Buy? originally appeared on Fool.com.Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Solazyme and Westport Innovations. Motley Fool newsletter services have recommended buying shares of Clean Energy Fuels, Monster Beverage, IMAX, Cummins, and Westport Innovations. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.