When the world is falling apart (or at least it feels like it) and you are struggling to find ways to make money, one of the first principles is to identify compelling secular trends that can last years, find the best ways to play then, then take your position and hold on tight.
I am not a big fan of buy-and-hold at the moment, since that strategy has returned you nothing when applied to a diversified portfolio or index fund. But at any time there are one or two long-term secular trends on which you can capitalize, regardless of what the markets do.
Every decade has its theme investment. The 1980s were the restructuring of the industrial companies. The 1990s were all things tech. The 2000s were smartphones and gold. A sizeable investment in any of these trends paid off with multi-bagger returns. So why not identify the theme of the teens and get on board?
I am convinced that natural gas the story of the teens. But you won't win by playing the commodity on either side, rather you need to find the beneficiaries of sustainably low natural gas prices and invest in them for the next five to seven years. In previous posts I have identified key beneficiaries of low natgas to be companies that make technologies to capture the economic benefits. For instance, engines that run on natural gas are going to boom and companies like Westport Innovations (WPRT) can exploit the trend.
Unique oilfield services companies can also benefit, as fracking is not going away and will actually expand around the world from just the U.S. and Canada. Two interesting Canadian stocks are Poseidon Concepts, which makes frack water tanks and yields 8% and GASFRAC Energy Services, which has a cleaner and more efficient fracking technology that uses propane and butane rather than water and sand.
My catalyst for writing about King Gas was a small news item that missed the radar screens of nearly all investors, but to me practically screams about the business model and technology changes that will be wrought by low natgas prices. There is a development stage biofuel company based in Chicago called Coskata that is private and unknown to most of the world, but is highly visible and followed closely in biofuel circles. Coskata is going into commercial production with technology to produce ethanol from cellulosic feedstocks, such as wood. (Their first plant was to open in the piney woods of Alabama in 18 months.)
Last week this future leader in renewable fuels made a shocking announcement. Their first "several" plants will use natural gas as the feedstock rather than biomass. Think about it. The economics of natgas are so compelling, the company is abandoning renewable feedstock and going with fossil feedstock. As the CEO told Biofuels Digest, "(t)he sea of natural gas is almost a problem, leading to historic price dislocation and a level of availability that has not been seen for a long time. With our technology, it will give us a lower ethanol cost on a per gallon basis, and a remarkably lower capital cost ..." Interestingly, if natgas can be converted to ethanol on a cost-competitive basis, the problems associated with the use of natgas in on-road vehicles are much closer to being solved. One of the risks to names such as Westport is that there is no good nationwide distribution infrastructure for natgas.
Coskata is only the first of what I believe will be many announcements from companies, public and private, that are figuring out how to make the compelling economics of $3 natgas work in their favor. I foresee a decade of disruptive technologies and business models, similar to what personal computers did in the 1980s or the internet did in the 1990s. Get on board for the (natgas-powered) ride.