Only one approved export facility
While there are numerous companies that have applied for approvals to build or convert facilities to be able to handle liquefying natural gas for export, only one company, Cheniere Energy, Inc. (NYSEMKT:LNG) , actually has the approvals to do so in place. Strangely, the other applications that have been made to do so seem to be making very little progress towards approval.
While this would seem to guarantee a booming business for Cheniere Energy, Inc. (NYSEMKT:LNG), that is not necessarily true. There are moves afoot to hamper the ability of natural gas producers and exporters from being able to do so at a price that would make it competitive in the global market.
But, even though there is nothing to stop Cheniere Energy, Inc. (NYSEMKT:LNG) from exporting liquefied natural gas (LNG), there is also nothing that prevents the federal government from taxing the exported gas at a level that would remove the economic incentive to do so.
Given the lobbying pressure from certain manufacturing segments that utilize massive amounts of natural gas and the desire of government to create more tax revenue, it should come as no surprise to anyone when a massive tax on LNG exports is proposed and cloaked as “protecting American jobs”; but many will be surprised.
As with any misguided policy, there will be winners and losers; Cheniere Energy, Inc. (NYSEMKT:LNG) could well be a massive loser as their entire business is based around exporting LNG. Investors need to consider this risk seriously before investing here. If no government action is forthcoming, Cheniere Energy, Inc. (NYSEMKT:LNG) will become an enormously valuable business, tax and regulatory changes could crush its prospects as a viable business.
There are always going to be winners
If moves underway by some environmental groups are successful in creating a high enough level of fear within the voting populace, the government will be incentivized to altogether ban the practice within the boundaries of the U.S. or to create such a harsh regulatory environment that will achieve the same effective result. Given the thirst of the government for revenue, the imposition of a high tax rate upon the process or product would seem to be the most likely approach foreseeable. While that would be a huge negative for the consumers of natural gas; there are always going to be winners.
Regardless of the outcome in the battle over exporting LNG, our country still consumes huge amounts and that gas must be moved from the well to the source of use; it must also be stored while waiting to be used and large amounts will be consumed in the production of electricity.
One of the big winners in every step of this process is Dominion Resources, Inc. (NYSE:D) . Dominion Resources, Inc. (NYSE:D) is in the business of operating natural gas pipelines, generating electricity and natural gas storage. No matter the fate of fracking or the outcome of discussions regarding restricting or taxing the export of liquefied natural gas, we will still need to transport and store our supplies of natural gas and turn a significant part of that gas into electricity, and Dominion Resources, Inc. (NYSE:D) will be there to profit from it.
Investors considering the allocation of capital here should look closely as this is not an inexpensive stock based upon fundamentals, but the business is very well positioned to prosper and has a current dividend yield of 3.65%.
Cheaper than Dominion and free to go anywhere
It might be very difficult to find anyone who has followed energy policy and practice in this country for very long who would doubt that the United States is capable of throwing away the prospects to become a global energy powerhouse through the implementation of misguided policies and practices. Therefore, it is wise to look for businesses that can take advantage of natural gas exploration and production anywhere in the world. C&J Energy Services Inc (NYSE:CJES) is a good place to start looking for such an opportunity.
C&J Energy Services Inc (NYSE:CJES) is involved in the hydraulic fracking process and performs this service for oil and gas companies. Its fleet of equipment is new and state of the art and, most importantly, portable. C&J Energy Services Inc (NYSE:CJES) can move its equipment to any location where there is a customer, inside or outside of the United States. If fracking is being carried out anywhere in the world, there are potential customers for C&J Energy Services Inc (NYSE:CJES).
China is estimated to have recoverable reserves almost 50% greater than the United States and Mexico’s are estimated at only about 21% less. If the U.S. decides we don’t want to allow fracking here, you can bet the rest of the world will not follow and C&J Energy Services Inc (NYSE:CJES) can follow the production with their portable equipment.
With a P/E ratio of 7.95 times projected earnings for 2013, this is a very reasonably priced stock and sports a 5-year projected earnings growth rate of 20%. If analysts’ projections are anywhere close to correct, this stock could easily increase 200% from current levels and still be fairly priced.
Serious final thoughts from a Foolish analyst
While I do write for “The Motley Fool”, there is nothing foolish about my approach to investing. Cheniere Energy, Inc. (NYSEMKT:LNG) has enormous upside potential but also possible catastrophic risk to their business should tax or environmental actions alter the cost of natural gas for export in an unfavorable way.
Dominion Resources, Inc. (NYSE:D) is a great business with an attractive dividend, but is valued quite highly by the market. Good businesses that are highly priced have more opportunity to decline than to advance.
C&J Energy Services Inc (NYSE:CJES) can move their equipment anywhere in the world where it is wanted and rent its services to the highest bidder. It is a great, well-run business, trading at a very attractive valuation for new investors. The current low price of C&J also provides for substantial protection from downside risk.
The article This Could Destroy Your Wealth or Make You Rich originally appeared on Fool.com and is written by Ken McGaha.
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