Share prices of companies that make industrial equipment tend to be very volatile. These companies are especially dependent on a healthy economy, and every time a new batch of economic statistics is released, the share prices of these companies gyrate wildly depending on the prevailing mood. However, to investors willing to take a longer-term perspective, the wild price swings in conservatively managed equipment manufacturers can be a source of great opportunities. One such company is Chart Industries (GTLS).
GTLS Stock Analysis:
Chart Industries is a company that makes equipment for the production, transport and storage of industrial gases. Its products include equipment such as cold boxes for liquefaction of gases and pressurized cryogenic cylinders for gas transport, and Chart Industries is the leading supplier in several of these product segments. The largest portion of their sales come from natural gas related businesses (62%), with the second largest segment being businesses that produce cryogenic gases (25%, mainly liquid nitrogen), and the smallest segment being businesses that produce medical respiratory gases (13%). About 65% of sales come from outside the US, but it is the US market that has the largest potential for growth, with the discovery of large natural gas deposits in the US and the tantalizing possibility of US energy independence.
Recently, enormous deposits of natural gas have been discovered in shale rock in Pennsylvania (the Report in New York Times). The natural gas deposits are large enough to theoretically power all cars in the US if the entire fleet is converted to use electrical power, thus ending US dependence on foreign oil. In addition, natural gas is a greener fuel than oil or coal, producing less carbon dioxide per unit energy released. The major obstacle to widespread use of natural gas is that utilization of natural gas requires expensive investment in equipment to liquefy, store and transport the gas. However, given that the alternative is funding expensive wars in foreign countries, there has been increasing talk of embarking on a large scale natural gas initiative in the US (a related report in New York Times), which, while expensive, would provide employment and energy security for the US.
Chart Industries has been consistently profitable through the financial crisis. Analysts predict that revenues will continue their decline in 2010 and 2011, though the company is still expected to be profitable. The company currently trades for $470 million, about 1x book value. I am predicting a free cash flow of $50-70 million conservatively, meaning that the company is now trading at below 10x earnings. The company has $190 million in cash, and $240 million in long term debt ($160 million due in 2015, $80 million due in 2012). I believe that the company has tangible assets (factories) and intangible reputation that is difficult to replicate, and that it will easily survive the downturn to capitalize on the growth industries of the future.
Stock Investment Risks : The company is in a cyclical industry, and is tied to commodity price swings. Share price also tends to be highly volatile due to low float.
Stock Investment Disclosure : I have a long position in GTLS.
