On Tuesday, an event took place that added momentum to the massive rollout of "Made in America" fuel... Ford Motor announced it will begin offering compressed natural gas (CNG) fuel systems for one of the country's best-selling trucks – its F-150 pickup. It will be the first half-ton pick-up truck capable of running on natural gas.
For years, I've been telling readers how the low price and abundance of natural gas will help it become a major transportation fuel. The massive cost savings has led industry giants like Wal-Mart, Fed-Ex, UPS, Waste Management, Coca-Cola, and AT&T to switch their trucking fleets from diesel to natural gas But natural gas isn't just replacing diesel as a fuel anymore. It's beginning to replace gasoline. Drivers are craving it. And it could lead to huge gains for the companies that can take advantage of it.
Many of Ford's pickup truck customers are oil and natural gas companies. I saw some of them on my recent trips to the Eagle Ford and Cline shales in Texas and to the Bakken Shale in North Dakota. I saw pickup trucks everywhere. In Williston, North Dakota, oil-services giant Halliburton owns a huge apartment complex built specifically for its employees. Almost every driveway has a pickup truck parked in it with a Halliburton logo.
These businesses told Ford they wanted the F-150 to run on natural gas. The natural-gas option could cost customers an additional $10,000. But if they choose it, truck buyers would save 42% per gallon of fuel at current prices. (The average U.S. price for CNG equals $2.11 a gallon compared to $3.66 for regular gasoline.) Plus, oil and gas companies in these shale regions already have the infrastructure (and the fuel) on site. In other words, they can save millions of dollars by not having to build costly natural gas fueling stations.
The F-150 is the latest addition to Ford's lineup of natural-gas-fueled vehicles. This year, the company expects to sell more than 15,000 such vehicles, 29% more than it sold in 2012. But it's still a very small percentage of the company's total sales. The country's second-largest automaker sold 2 million vehicles in total last year.
My top way to invest in this trend is to buy the "nuts and bolts" companies that supply the natural gas fuel system components to automakers like Ford... companies like Westport Innovations. Westport (WPRT) is a familiar name to regular readers. The company makes the technology that allows engines to run on natural gas. My Small Stock Specialist readers have made money in the stock twice... We closed out of our first position last April for a 116% gain in 16 months. And we closed out of our second position last September for a 49% in less than four months.
I recommended the stock for a third time in May. So far, my subscribers are up nearly 20%. In April, I visited Westport's headquarters. They let me ride in an F-250 pickup that was powered by natural gas and their technology. The ride was incredibly smooth. And these trucks were powerful. In other words, oil and natural gas companies are not looking to sacrifice quality for price. Westport's technology is now being featured in the F-150s as well. This is not surprising based on what Demers told me three months ago. He said, "Most of our competitors are just starting to break ground in the industry. We've moved well past that. Our job now is trying to find the right applications for clients over the long haul."
That explains why the stock has underperformed the market over the past 12 months. Westport has been burning cash to improve its technology and provide new engines for every vehicle class, including heavy duty trucks, buses, garbage trucks, and pickup trucks. I believe Westport has enormous upside potential from these levels. The company has 326 natural-gas-engine-related patents. This is by far the most of any company in the entire industry. Toyota holds the second-most patents (226) and Caterpillar comes in at No. 3 (181). More importantly, Westport and its partners have filed over 700 patent applications for natural-gas-engine-related inventions. It's next-to-impossible for a competitor to build a natural gas engine without infringing on at least one of Westport's patents.
The company is also targeting other markets that use diesel for fuel... including locomotives, ferry boats, and cell-phone-tower operators. My advice is to scale-in to Westport. That means buy small lots of the stock over the next few months instead of taking a full position today. You also have a rare opportunity to buy this stock on sale. Shares pulled back after the company reported weaker-than-expected financial results last night. Long term, Westport has huge upside potential. But shares could be volatile for at least another quarter or two as the company rolls out its new products over the next six to 12 months.