Shareholders in Westport Innovations (Nasdaq: WPRT) have endured quite the roller-coaster ride this year. The stock started 2012 by jumping 46% in about three months. Since then, however, shares are down more than 30%.
If you're looking to invest in the company -- which designs engines that can run on natural gas -- I'll outline three crucial metrics to keep your eyes on below. Read all the way to the end and you can get access to a report identifying the only energy stock you ever really need to own.
A better deal than standard gasoline
One of the key factors driving the natural gas revolution is the rock-bottom price of natural gas today. Though the engines that Westport designs cost more than the standard diesel variety, the savings a customer gets from natural gas more than makes up for the difference.
As long as there's a stable and significant difference between a gallon-gas-equivalent of natural gas and a gallon of standard fuel, there will be sufficient demand for natural gas engines. A look below shows you the kind of savings customers are looking to get with Westport engines. The spot price of natural gas and standard unleaded in eight major U.S. cities are plotted below.
Source: Gasbuddy.com, Altfuelprices.com.
As it is, the average natural gas user in these eight cities is saving 38% on fuel costs. For freight truckers -- which is where Westport is concentrating right now -- that's a huge savings when hundreds of thousands of miles are driven every year.
But can we all use it?
One of the reasons that Westport is focusing primarily on freight trucks is because of the difficulty involved in laying out the infrastructure needed to make natural gas feasible for normal passenger cars.
If a much less concentrated network of natural gas fueling stations can be built out along major interstate highways, it becomes much more likely that freight truckers would adopt the new fuel. As it is, Clean Energy Fuels (Nasdaq: CLNE) is leading the charge in building out America's Natural Gas Highway.
Source: Clean Energy Fuels.
Royal Dutch Shell is also getting in on the action. Along with plans to supply natural gas at over 100 locations in the United States, the company is planning on setting up a string of stations on what it's calling the "Green Corridor Project." When completed, long-haul truckers in Western Canada will have enough stations to use natural gas as their fuel of choice.
Friends, or enemies?
Finally, it will be vitally important for Westport to capitalize on its strategic partnerships moving forward. The biggest issue Westport shareholders lose sleep over is the fact that Westport doesn't manufacture any of its engines. Instead, the company forms partnerships with original equipment manufacturers (OEMs) -- Westport provides the patented designs, and the OEM takes care of the fabrication.
Earlier this year, one of Westport's strongest partners -- engine maker Cummins (NYSE: CMI) -- announced that it would be making its own 15-liter engine, sending fear into the heart of the market. Though I think the market overreacted to the announcement, it's a clear sign of the type of weakness inherent in an investment in Westport.
As things stand now, Westport has strategic initiatives in place with some other big names. It is partnering with Ford (NYSE: F) to manufacture F-250 and 350 truck engines that can run on both standard fuel and natural gas. Recently, Westport also announced that it would be helping Caterpillar (NYSE: CAT) manufacture natural gas engines for its fleet of off-road vehicles.
Though there's no indication either one of these companies has plans to develop their own natural gas engine, it's something to keep an eye on.
One company for all of your energy needs?
I like Westport's prospects enough to both own it and have a bullish CAPScall on my All-Star profile. But if you aren't interested, I suggest you take a look at our special free report: The Only Energy Stock You'll Ever Need. This stock, which I own as well, offers lots of upside with a very stable business model. To find out what company it is, get a copy of the report today, absolutely free!