The Stock for July -- Clean energy Fuels Corp.

The stock of the month for July is Clean Energy Fuels Corp. (symbol CLNE). This is a somewhat unusual pick for me; the selection is based upon one megatrend that I believe is almost inevitable to come to fruitiion, the use of vehicles powered by natural gas. CLNE is enmeshed in many aspects of that trend, with the company both selling filling station infrastructure for nat gas and operating its own stations principally in the West.

Let's look at the megatrend first. At the moment, gasoline and diesel fuels are extremely expensive and there is no indication that there will be a price drop any time soon. Indeed, president Obama decided to try to lower prices by releasing 30 million barrels of oil to the market from the strategic petroleum reserve over the next month. Since that announcement was made, the price of oil has actually risen a bit. Natural gas prices, however, are very low. At the moment, equivalent amounts of gasoline and natural gas sell are priced at a ratio of almost 5 to 1. In other words, If you spend $50 to fill your tank with gasoline, you could get the same amount of fuel for a natural gas vehicle for just over ten dollars. Even better for natural gas, essentially all of the supply is domestic and there are huge reserves of the fuel that have been discovered in shale fields in many locations across the USA. The supply is so huge that there is little likelihood of major price increases in the near term.

The government has been pushing the auto industry to build electric cars, not natural gas vehicles. These vehicles cost substantially more than gasoline powered vehicles and the electric charge does not last that long, thereby forcing these "electric" vehicles to return to their gasoline backup engines after about 40 miles. The current natural gas vehicles on the road have a range of about 250 miles on one tank of natural gas. If the auto companies gave this issue more thought, there is no doubt that the range could be increased to 350 miles or higher.

The electric cars also operate using electricity that is generated for the most part by burning coal, so the cars actually result in additional greenhouse gases and pollution. Natural gas cars reduce emissions substantially compared to both electric and gasoline powered vehicles.

So why are there not more natural gas cars on the road? The main answer is inertia. We have an infrastructure that is designed to service and fuel gasoline powered cars and trucks. We have an industry that churns out gasoline and diesel powered cars and trucks. The whole country is familiar with gasoline and diesel, but few have ever driven a natural gas powered vehicle. Despite the inertia, the advantages of natural gas over oil based fuels are so large that the change will likely come sooner rather than later.

Right now, there is pending in Congress The New Alternative Transportation to Give Americans Solutions Act (NAT GAS Act), a bill that would have the federal government offer subsidies for natural gas vehicles similar to the ones on the books for electric vehicles. There are also subsidies and incentives for new natural gas filling stations. While the name of the bill is poor, the content is not. There are objections from companies that produce propane powered vehicles and other alternative fuels, but these are minor. The NAT GAS act has bipartisan sponsorship. The main problem is that the president has not taken a position on it. Were Obama to endorse the bill and push for its passage, it would likely be enacted even in the current period of supposed austerity. Indeed, were there to be a switch from oil fuels to natural gas fuels, there would be a significant increase in American jobs and incomes, a substantial boost to the economy and an increase in federal tax revenues while expenditures were falling. In short, the logic of promoting and using natural gas as a vehicle fuel is overwhelming. Of course, just because something is logical does not make it inevitable. The past is filled with illogical choices made in Washington. For natural gas, however, the logic is so strong that there already is a movement towards the fuel even without intervention from Washington.

So, if the move to natural gas happens (and I strongly believe that it will), why should one invest in CLNE? Clean Energy Fuels Corp. should prosper no matter what sort of natural gas powered engines or vehicles are finally the norm since CLNE focuses on the delivery of the fuel and not the vehicles. Right now, CLNE services the nat gas fleets of about 500 customers with over 20,000 vehicles. Most of these vehicles are large, i.e., trucks or buses. CLNE also operates or supplies just under 250 natural gas fueling stations in something like 20 states and Canada. These figures growing rapidly.

The revenues of the company were $211 million in 2010, and they are estimated by the analysts to rise to about $390 million in 2012, an increase of 84% in two years. The company should also be profitable in 2012. Obviously, the estimates for the next year are less certain than would be the case with a mature company in a steady business. Nevertheless, the trend is clear and the future looks quite bright.

CLNE is a good stock for a long term speculative investment. It is not a place for the mortgage money or the kids' college fund. Nor is it appropriate for a large portion of your investments. Nevertheless, it is a good place to put some funds that you will not need for three to five years.

As is the case will all stocks I mention, I strongly suggest that you do your own investigation before investing. That is particularly the case here since the main reason for my recommendation is a megatrend rather than the company performance itself.

Disclosure: I am long CLNE