As we emerge from earnings season, I’ve taken some time to review a few of my favorite companies and come to terms with where things stand. That’s led me to take a hard look at the part of my portfolio that’s dedicated to the expansion of natural gas as a transportation fuel. There are a handful of companies that are early in the game.
But for Westport Innovations Inc. (USA) (NASDAQ:WPRT), that came as no big surprise to anyone paying attention to the truck market for the past year. Total revenue for the quarter was down more than 20%, from $36 million a year ago to $30 million this quarter. For a company that’s promising upwards of 30% growth this year, that’s a pretty terrible way to start off. Additionally, the net loss for the period grew from $22.6 million a year ago to more than $31 million this year.
Yes, you read that last statement correctly. Westport’s net loss in the first quarter was larger than its total A little scary, right? Except that it would be ignoring an important point: Westport Innovations Inc. (USA) (NASDAQ:WPRT) was (and is) investing in technology that could be transformational for the trucking industry; much of those losses are the cost of laying the groundwork for the launch of the most important engine in the company’s history; maybe the most important engine in the past 50 years in the trucking industry: The Cummins Inc. (NYSE:CMI) Westport ISX12 G. Simply put, this is the engine that will allow over-the-road trucking fleets to adopt natural gas, and its tens of thousands of dollars in annual fuel savings per-truck, en masse for the first time ever.
Cummins Inc. (NYSE:CMI) is in a strong position with its partnership with Westport Innovations Inc. (USA) (NASDAQ:WPRT). Where more recent partnership deals have shifted more of the risk and cost to the partners, the Cummins Inc. (NYSE:CMI) JV has been funded more heavily by Westport Innovations Inc. (USA) (NASDAQ:WPRT), requiring stock offerings (and the dilution that comes along with it) several times to fund the build-out costs.
Simply put, Cummins Inc. (NYSE:CMI) has positioned itself to grow its already strong position in the heavy-duty engine market with this partnership. And while the upside opportunity isn’t nearly as strong, investing in Cummins Inc. (NYSE:CMI) and its dividend-paying existing business offers a certain predictability that income investors may prefer, versus the risk of a Westport Innovations Inc. (USA) (NASDAQ:WPRT), which is completely reliant on large-scale adoption of natural gas engines by the trucking industry.
As long as there’s somewhere to get fuel, that is
Which is where Clean Energy Fuels Corp (NASDAQ:CLNE) comes in. Its partnership with privately-held Pilot/Flying J to build out an extensive network of refueling stations, its so-called America’s Natural Gas Highway, is promising to establish more than 300 LNG stations, mostly at existing Pilot and Flying J locations. While Clean Energy Fuels Corp (NASDAQ:CLNE) is an established player in the natural gas refueling business, its primary customers have been historically CNG “return to base” vehicles like metro transit and refuse vehicles. It’s massive expansion into LNG for truckers is a heavily leveraged bet that could reward patient investors will massive growth.
Additionally Shell -B), -A) is also making a serious move into LNG for truckers, working with TravelCenters of America LLC (NYSE:TA) to add LNG fueling lanes at up to 100 existing locations. And while seeing a behemoth like Shell jump in the mix could be enough to spook some investors, it’s important to remember that competition from the “big boys” also serves as validation of the market opportunity. Additionally, Shell’s stability, sheer size, and 5% dividend offers a nice anchor with much less downside risk, compared to the much more speculative Westport Innovations Inc. (USA) (NASDAQ:WPRT) and Clean Energy Fuels. Simply put, Shell is a low-downside, low-upside way to add natural gas to your portfolio.
Foolish bottom line
If this were a baseball game, it would still be the top of the first inning: So far, none of these companies have seen any material benefit from CNG adoption by the trucking industry. With that said, Westport and Clean Energy both could hit a “home run” before the end of the year if adoption is rapid. The success of natural gas as a transportation fuel will be the determining factor as to the future of both of these companies. If truckers don’t make the switch, they both strike out, while Shell and Cummins Inc. (NYSE:CMI) will continue to survive, if not thrive, on their legacy businesses, like a good contact hitter, hitting singles on a consistent basis.
It’s up to you to decide what works for your portfolio: Me? I’m swinging for the fences.
The article When a Bad Quarter Doesn’t Really Matter originally appeared on Fool.com.
Jason Hall owns shares of Westport Innovations and Clean Energy Fuels. The Motley Fool recommends Clean Energy Fuels, Cummins, and Westport Innovations. The Motley Fool owns shares of Cummins and Westport Innovations. Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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