I have written a few times about the dramatic effect fracking technology has had on oil & gas production and on domestic energy prospects and policies. U.S. energy production is increasing in a smart way for the first time in over a generation and the effects are rippling through the economy. Major international chemical companies like BASF are developing multi-billion plants in Louisiana, Texas and other states to be close to this new robust and cheap fuel source. North Dakota is now producing more oil than Ecuador and, soon, Alaska. Ironically, low natural gas prices are having negative ramifications for some producers, like Chesapeake (CHK), that took on too much debt.
I believe we are in the early innings of the build-out of natural gas & oil infrastructure to accommodate this expanding fuel source as well as the migration over from other fuels such as coal. Let's look at two long-term plays that should continue to benefit from these generational energy trends.
Fuel Systems (FSYS) designs, manufactures, and distributes components necessary for vehicles that run on alternative fuels such as natural gas. Four reasons FSYS is a long term buy at just over $15 a share:
- Earnings are expected to increase rapidly over the next couple of years. The company made $0.26 a share in 2011. Analysts expect FSYS to increase that to $0.41 in 2012 and more than doubling growth to $0.96 in 2013.
- Insiders have been net buyers of the stock so far in 2012 and have a significant stake in the company.
- The company has a robust balance sheet with approximately $3.50 in net cash per share and sells for just 94% of book value.
- The stock is way below consensus price targets. The median analysts' price target is $25.50.
Chart Industries' (GTLS) products are necessary for condensing natural gas into a liquid, which allows for easier transportation and storage. This will be critical as the U.S. builds out the infrastructure for exporting LNG. Four reasons GTLS is a solid growth play at just over $66 a share:
- Although pricey from a price-to-earnings basis, the company has robust growth ahead. Chart made $1.84 in 2011, but analysts project that to increase to $2.77 in 2012 and $3.91 in 2013.
- The company is also experiencing rapid sales growth and revenue growth estimates for both 2012 and 2013 are north of 20% annually.
- Huge new domestic LNG plants are starting to get financed, like Cheniere Energy's (LNG) huge Sabine Pass project. This bodes very well for Chart's future revenue stream and backlog.
- The 11 analysts that cover GTLS have a median price target of $83 a share.