News and commentary

Big Money Watch Trade Alert

By Maurice Barnfather
Updated: Monday, November 03 2008 05:11:PM

Name:	CHART INDUSTRIES,
Ticker:	GTLS
Entry Price:	12.95
Target Price:	20
Time Horizon:	18 m
Risk Level:	Medium

Brandywine's Bill D'Alonzo and Century Small Cap Select's Larry Thorndike have lately been buying this stock. Should you?

In 1959, the Methane Pioneer, a converted Second World War ship, set out from Lake Charles in Louisiana, bound for Canvey Island, site of an unlovely oil terminal east of London. On board was a cargo of liquefied natural gas (LNG). The pioneering transatlantic voyage proved that gas in this state could be transported safely from producer to consumer and from remote areas where reserves are large to the places where there is a market for natural gas. Over the intervening years, there has been much talk of LNG being a "fuel of the future" but the amount of gas transported by this means (as opposed to being sent by pipeline) has remained fairly modest, due to the expense of liquefying, transporting and regasifying it.

In the past few years, however, with oil prices rising sharply and energy consumers becoming ever more anxious to diversify their sources, there has been a surge of interest in LNG. Natural gas is cleaner than other fossil fuels, and gas-fired power plants are relatively cheap to build, prompting a "dash for gas" by American and European utilities. Demand for gas is still growing in rich countries, even as their thirst for oil has faltered. But domestic supplies have been shrinking. Europe, in particular, is becoming ever more dependent on gas imported by pipeline from Russia.

That is where LNG comes in. It allows producing countries to profit from "stranded gas" located far from big markets, and lets consuming countries diversify their supplies. Whereas global gas consumption is growing by 2% to 3% a year, demand for LNG is growing by 7% to 10%, accounting for a quarter of the international trade in gas. The International Energy Agency, a watchdog for rich countries, expects LNG trade almost to double by 2015.

That's music to the ears of $379.04 million (market cap) Chart Industries (Ticker: GTLS), a leading manufacturer of standard and engineered equipment used for liquefying and storing industrial and natural gas. Energy-related and end-used applications account for the majority of its sales, placing Chart at the center of the global LNG supply chain.

As natural gas is found in more remote locations, including stranded gas in the Middle East, its should provide Chart with tremendous growth opportunities over the near term, since its products are preferred over pipelines for long-range LNG transportation greater than 2,200 miles. Further, the geographic size of some countries can limit pipelines' viability, making LNG storage facilities a necessity for natural gas consumption. Along with servicing the gas market, Chart also leverages its cryogenic expertise into the biomedical services industry.

Last Friday, Chart posted a 68% increase in third quarter profit. Net income increased to $20.4 million or 70 cents a share from $12.1 million or 42 cents a share a year earlier. Analyst Christopher Agnew of Goldman Sachs said investors will focus more on the company's "cautious stance on 2009", rather than the strong results for the quarter. He is "guarded near term" due to concerns of limited financing availability, slowing economic growth and the potential for reduced capital spending next year.

But these concerns seem already to be reflected in a stock price of $12.95, forward p/e of 4.86 and PEG (price/earnings to growth) of just 0.28. Big Money Watch is buying the stock with a target price of $20 within 18 months.