Wednesday, October 27, 2010

"Clean Energy Winners: EPA Emissions Trades" (CLNE; FSYS; WPRT; JCI)

Yesterday we did something that is difficult to do. We beat TheStreet's Eric Rosenbaum to the implications of a government policy decision in "T. Boone Pickens-- Score!: EPA Proposes Carbon Dioxide Regulations for Trucks, Buses, Pickups (CLNE)".

Rosenbaum is one of the best journos writing in the clean/green/alt space and is intellectually honest enough that he doesn't have an agenda to push, a failing of many that can cost the reader serious money.
Here he is doing it backward and in heels.*
CLNE is up another 2.44% at $14.87.
Natural gas truck stocks, and at least one prominent player in the electric vehicle battery space, rallied on Tuesday for reasons that defied easy explanation, but could be tied to Monday's announcement from the Obama administration of the first emissions standards for heavy-duty trucks.

If that's the case, it's a buyer beware scenario, as the read-through that the new EPA emissions standards will directly benefit alternative transportation technologies is a tenuous case to make at best.

The three major natural gas vehicle stock plays, Westport Innovations(WPRT_), Clean Energy Fuels(CLNE_), and Fuel Systems Solutions(FSYS_) were all up on Tuesday, with Westport shares leading the charge, rallying by 4.5%. Clean Energy Fuels and Fuel Systems Solutions were each up 3.5%. All three stocks saw typical trading volume, but the action still looked like the type of sector basket trading that usually only occurs for these stocks on major legislative news.

A123 Systems(AONE_), a maker of lithium batteries for electric vehicles, was up 5%, and its case, trading was twice its daily average.

There were some company-specific announcements on Tuesday that could have been a read-through trading signal for A123 and Westport. Chinese car and electric battery maker BYD announced a 99% drop in income in the most recent quarter on Tuesday. It's possible that BYD's sales losses are being read by the market as A123's gains.

In the case of Westport, its joint venture partner Cummins(CMI_) announced quarterly results on Tuesday. While the earnings were largely a disappointment to Street expectations, Cummins did say it would be spending $200 million on engine technology spending, including new initiatives for natural gas engines.
In even more general earnings commentary about transportation, Ford(F_) and Johnson Controls(JCI_) were saying more positive things about the automotive market. It was a notably big day of trading for Ford shares, with more than 214 million shares in play on Tuesday, versus an average daily volume of 61 million shares, following the company's quarterly report.

In any event, the real wildcard on Tuesday is whether investors were betting that the new EPA emissions standards for heavy duty trucks made a stronger case for alternative transportation stocks like natural gas truck companies. The EPA was clear in its release that the emissions standards weren't applicable to natural gas vehicles.

Several analysts covering the alternative transportation sector said the EPA news made the most sense as a trigger for the natural gas stocks in particular to rally. Looking at other potential legislative triggers for a rally, there seemed to be little news meriting a trading case....MORE
* The quote is often mis-attributed to Ginger herself. The actual source was a Frank and Ernest cartoon: