An Unknown Energy Stock About To Explode!
The Dynamic Wealth Report
September 20, 2010
by Brian T Mikes, Editor
If you’ve spent any time monitoring the energy industry, you know there
are some major cross currents happening right now… the biggest one
involves oil and natural gas.
Normally these two energy commodities trade in lock-step.
But in the last few months, that’s all changed. Oil has been climbing
higher while natural gas has been moving lower. Right now oil’s trading
over $75 a barrel and natural gas is under $4.00.
Just look at this chart.
The divergence is astounding. Oil and natural gas broke
their bond 18 months ago. And they’ve been heading in opposite directions ever since.
This has huge implications for the energy industry… I’ll tell you about
them in a moment.
It is clear oil’s getting more expensive while natural gas is getting
cheaper… but what’s causing the divergence?
I see two things…
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First, oil prices are higher because oil demand is up. Keep in mind, the
primary use of oil is in transportation. Barrels of oil are turned into
gasoline which is used to power our cars.
But now the competition for oil is heating up.
The US has a huge number of cars, but China is quickly catching up.
Consider this simple fact… In 2009, more cars were bought in China than
in the US. And each and every one of those autos needs gasoline to run.
So that explains the climbing price of oil… Why is natural gas falling?
I have one word for you - “Fracking!”
Fracking is a new technology used to break up shale deposits. It allows
drillers to extract natural gas trapped within the shale. Thanks to this
new technology, our natural gas reserves have gone through the roof!
It's Economics 101… flood the market with supply and prices will fall.
But let me propose a game changing question… the big “What if…”
What if instead of using oil to power our vehicles, we started using
natural gas?
Think of the implications. Natural Gas is cheap and plentiful… oil
isn’t. Prices would certainly fall, no more $3 or $4 gallons of gas. The
idea isn’t so far off.
Oil man T. Boone Pickens is proposing the use of natural gas in
vehicles.
And the federal government will be voting on HR 1835 – the natural gas
act – which calls for federal vehicles to start using natural gas as
well.
Believe it or not, a number of cities around the US are already running
public buses on compressed natural gas.
The technology to convert cars from gasoline to natural gas isn’t that
complicated… and one company seems to have a monopoly on the entire
system!
Let me introduce you to Fuel Systems Solutions (FSYS).
In the spirit of full disclosure, a few years ago I worked as an
investment banker advising the board on mergers & acquisitions. I also
helped the company raise money. But, a lot has changed since then.
They’ve brought in new management, changed the name of the company, and
ramped up their acquisition search. In fact, it’s the recent
acquisitions that brought the company to my attention.
You see, FSYS just made an important 8-K filing with the SEC. On
September 2nd, they announced the closing of one acquisition and the
start of another! They bought Productive Concepts International, and at
the same time, struck another deal to purchase Evotek.
Both of these small companies focus on providing products to the auto
industry for alternative fuels. In one case, the company specialized in
equipment for cars to use compressed natural gas (CNG)!
These acquisitions didn’t come out of the blue. They’re both natural
fits for FSYS. After all, the company already makes several aftermarket
kits to convert automobiles from gasoline to natural gas. These kits can
be used on automobiles, buses, and even light industrial vehicles (like
forklifts)!
Simply put, if you ever want to run a vehicle on natural gas, you’ll need
to buy systems from FSYS.
They’re cornering the market on these special types of fuel delivery
systems.
Think of the orders they’ll capture if the Natural Gas Act gets passed…
the US government alone operates more than six million vehicles!
Here’s another reason why I really like the company…
Unlike most alternative energy companies, FSYS is a real business. They
have more than $100 million in cash and over $400 million in assets. In
just the last six months, they’ve generated more than $261 million in
revenue. And their profits are almost $35 million.
It puts the company on track to do almost $4.00 in earnings per share…
With a current stock price of around $34, their P/E is only 8.5x! Not
bad for a company expected to grow at more than 16% per year for the
next five years. Personally I think the growth rate is low, but that’s
just me.
All in all, FSYS is right at the beginning of a long-term trend towards
natural gas vehicles. With natural gas prices so cheap, it’s hard to
imagine this new technology not competing with big oil. As a result, the
market is handing us a strong company that’s dramatically undervalued.
Take a look for yourself… but move quickly, this company won’t be this
cheap for very long.
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• Precious Metals Industry (Up 20%)
The top performing industry group over the last month is the Precious
Metals industry, skyrocketing over 20% in the last month. Leading the
rally in the group are companies like Golden Minerals (AUMN) who
explore for metal deposits in Latin America. The company’s up more
than 79% in the last month.
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