November 11, 2012 in Business

Clean Energy’s long-term plan shows promise for big rewards

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Clean Energy Fuels (Nasdaq: CLNE) is powering our way to a sustainable energy future by providing natural gas for trucking fleets in the U.S. and Canada.

The company is building “America’s Natural Gas Highway.” If accomplished, the network of natural-gas fueling stations along busy trucking routes would spark even greater demand for nat-gas-powered engines. Of course, this would lead to considerably more business for Clean Energy Fuels.

There’s risk, though. Clean Energy Fuels has yet to post a profit. But before you write it off as a viable investment, consider this: Building a natural-gas infrastructure from the ground up isn’t cheap, and it won’t happen overnight. That combination makes this stock a speculative play.

Clean Energy Fuels’ alternative-fueling plan has the potential to transform the trucking industry. Game-changing strategies like this are meant to be risky. And that’s OK, because with greater risk comes added reward. On the plus side, Clean Energy already has 530 fleet customers, and its revenue has been growing by more than 20 percent annually over the past five years.

This investment idea is a long-term one, meaning that it needs considerable time to deliver on its promise. Just be sure to check in periodically to verify that the investment thesis hasn’t changed.

(The Motley Fool owns shares of Clean Energy Fuels and its newsletters have recommended it.)

Ask the Fool

Q: When one company spends millions of dollars buying another, where does that money actually go? – R.Y., South Berwick, Maine

A: If it pays cash, the money goes to the shareholders of the acquired firm. There can also be payments to other owner classes, such as holders of preferred stock. On some occasions, some of the cash tendered may go to debt holders, if part of the purchase price is allocated to buying back debt.

If the acquirer buys with its own stock, then shareholders of the acquired firm will get shares of the acquiring company in exchange for their acquired-firm stock. They can sell these shares for cash or simply hold on. Companies typically buy other companies for more than their pre-purchase market price, paying a “premium.”

Some purchases involve combinations of cash and stock. In all-stock transactions, no cash trades hands.

Q: How do private and public companies differ? – W.B., Greenville, N.C.

A: A public company is one that has sold some shares of itself to the public. They’re generally required to file quarterly earnings reports with the Securities and Exchange Commission (SEC), detailing their revenue, expenses, taxes, debt loads, cash levels, income or losses and much more. These reports are available to the public.

Meanwhile, owners of privately held companies, which most of us can’t invest in, don’t have to reveal much. They can focus more single-mindedly on their businesses and not what the stock market thinks of them.

The biggest private companies include IKEA, Cargill, Koch Industries, Mars, Bechtel, Publix Super Markets, Ernst & Young, Pilot Flying J, Enterprise Rent-A-Car, Toys R Us, Fidelity Investments, Amway, SC Johnson & Son, Hilton Worldwide, Kohler, Perdue, Levi Strauss, Gilbane and Hallmark Cards.

My dumbest investment

A while back, I noticed that a certain small biotechnology company had gone up 10 percent per day for several days in a row. I knew nothing about the company, but I intended to buy it, hold it until the next day, and then sell on another day’s 10 percent gain. Nearly to the minute, once I placed my order, the stock began falling. I sold three weeks later for a 28 percent loss. Lesson learned. – S.D., Salt Lake City

The Fool responds: As you noted, you were making decisions and allocating your money without even knowing much about the company. That’s always a risky proposition. Many stocks, especially those of small companies, can be quite volatile, and the more you know about them, the better. Biotech companies, for example, might rise on rumors that a certain drug will soon receive FDA approval. But then if the drug is instead rejected, the stock will swoon.

Always know why you’re buying into a company, and aim to do so when it’s undervalued. Then keep up with its progress. Great wealth is best built over long-term investments, too, not one-day ones.


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