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The U.S. Energy Story No One's TellingBy Larsen Kusick, analyst, Phase 1 InvestorThursday, February 23, 2012 We've left out a big part of the story...
Growth Stock Wire readers have been hearing about the shale gas revolution for years – long before the mainstream media picked up the story. And over the past couple days, my colleague Frank Curzio has told you about the massive transportation revolution developing thanks to low natural gas prices.
But we haven't talked about some of the most important players... some of the safest, surest ways to profit on these trends. Let me explain...
As you know, new technologies have "unlocked" massive amounts of natural gas right here in the U.S. These resources are so enormous, we're now the "Saudi Arabia of natural gas." Within a few short years, we'll be exporting liquefied natural gas (LNG). We'll see thousands of trucks converted to run on natural gas. And hundreds of natural gas-gas stations will pop up all across the U.S.
Companies like Westport Innovations (natural gas engines), Clean Energy Fuels (natural gas fueling stations), and Cheniere Energy (LNG exports) are obvious winners.
But they're not the only ones that will see huge increases in profits.
It's going to take thousands of "intermediate steps" to build out America's natural gas infrastructure... which brings me to the "picks and shovels" plays of the natural gas story.
Whenever you hear about a huge boom in a commodity... look around for the suppliers – the "picks and shovels" plays – that can profit. Because they'll do a steady business through swings in the commodity price, they're often the safe, "sleep at night" way to invest in a resource trend.
And this energy "megatrend" is no exception. You see, natural gas is trickier than liquids like oil and gasoline. A child with a bucket can move a liquid from one end of the house to another. Transporting gas is a different story.
Outside a pipeline, natural gas becomes a headache for anyone trying to move it. To make it manageable for transportation and storage, natural gas needs to be cooled down.... way down, to below -259 degrees Fahrenheit.
That requires a lot of special equipment. You need a machine called a heat exchanger to reach such subzero temperatures. And massive LNG plants have entire systems (known as "trains") that generate millions of tons of LNG each year.
Gas stations that want to sell natural gas will have to buy special equipment and systems. These new businesses will need special storage tanks, piping, safety equipment, and so on.
While the stocks of natural gas producers will boom and bust with small moves in the commodity price, the picks-and-shovels companies will continue to build out America's new natural gas infrastructure.
One likely leader in this new market is Air Products and Chemicals (APD). Air Products is a $19 billion company that has supplied and handled gases for decades.
It's been integral in building LNG plants all over the world since the 1970s. It sells machines such as heat exchangers, as well as a variety of other parts and services needed to operate an LNG plant.
In short, it's one of the few companies in the right place at the right time... just as natural gas use is about to boom in the U.S.
Air Products is already a giant company. The majority of its business comes from selling other industrial gases, like oxygen, nitrogen, and argon. So you won't get as much "bang for the buck" as a company that has more direct exposure. But you're much less likely to see the massive volatility you would with producers.
You can't crack the Wall Street Journal or the Financial Times without reading another story about the natural gas revolution. This is the story no one's telling yet... the picks and shovels story.
Good investing,
Larsen
Further Reading:
Since the nuclear disaster last year, Japan has increasingly relied on LNG as an alternative energy source... creating an incredible boom for the LNG shipping industry. If this growth continues, Frank Curzio says we could see 50%-plus gains for most companies in the sector. Read more here: Why This Tiny Energy Sector Is Booming Right Now.
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Ag companies are quietly breaking out... Syngenta, Archer Daniels Midland, and Bunge hit six-month highs.
Big tech trend continues... Microsoft, Intel, Apple, Cisco, and Qualcomm up 30%-plus in the past six months.
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