In February 2021, I recommended seven stocks to buy under $20. One of those was Clean Energy Fuels (NASDAQ:CLNE), the largest provider of renewable natural gas (RNG) in North America. I was convinced CLNE stock would keep moving higher due to the transportation industry’s transition beyond fossil fuels.
That didn’t happen.
At the time, it was trading around $13. Today, it’s a few cents above $7 as I write this. Did anything change to alter its trajectory? Or, has this big correction provided investors with a tremendous buying opportunity?
I’ll look at both sides of the argument.
CLNE Stock Versus the Other 6
As I said, CLNE was part of a gallery of seven stocks to buy under $20. Here’s a breakdown of the performance of all seven selections.
7 Stocks Under $20 to Buy Now – Performance from Feb. 5, 2021, to Aug. 4, 2021
|Company||Closing Price – Feb. 5||Closing Price – Aug. 4||% Return|
|Qurate Retail (NASDAQ:QRTEA)||$13.12||$11.68||-11.0%|
|Ares Capital (NASDAQ:ARCC)||$18.09||$19.88||9.9%|
|Algonquin Power & Utilities (NYSE:AQN)||$17.53||$15.88||-9.4%|
|Outfront Media (NYSE:OUT)||$20.11||$23.03||14.5%|
As you can see by their performance, these selections weren’t my finest recommendations of 2021. However, I was making the selections based on an investor buying them for the long haul in my defense.
The fact that they haven’t performed over the past seven months doesn’t mean they won’t do so over the next seven and the seven after that.
Anyway, in June, I rated 10 stocks from best to worst favored by Reddit investors at the time. Tesla (NASDAQ:TSLA) was rated the best of the bunch. Clean Energy was fourth-best behind Palantir Technologies (NYSE:PLTR) in third place and KB Home (NYSE:KB) in second place.
The worst of the 10? Clover Health (NASDAQ:CLOV).
Other Reasons to Like Clean Energy
One of the other reasons I like CLNE is that it makes money on an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) basis and generates positive free cash flow (FCF).
In the trailing 12 months (TTM) ended March 31, CLNE had FCF of $55.6 million. Based on a market capitalization of $1.54 billion, it has an FCF yield of 3.6%. That’s considerably higher than its FCF yield in February, so you’re getting a much better value at this point in the game.
My InvestorPlace colleague, Josh Enomoto, made some good points about Clean Energy in July. While labeling CLNE as “wildly risky,” he did say that CLNE has the potential through its network of truck-friendly fueling stations to take RNG converted from solid-waste landfill and get it into the hands of commercial transportation across the country.
By doing so, Clean Energy can be an important part of North America’s transition from fossil fuels to the electrification of our transportation system.
Very true. And also true that CLNE is a speculative investment. However, Total (NYSE:TOT) owns 25% should be enough to encourage aggressive investors to kick the tires on the company’s stock.
Speaking of Total, it is developing carbon-negative RNG production facilities in the U.S. with Clean Energy, its 50/50 joint venture partner in the initiative. Not only might the two companies inject more than $400 million in equity into the joint venture, but Total will also provide credit support for Clean Energy to build out its RNG fueling infrastructure.
“The demand by customers for RNG continues to accelerate, highlighted by our recent announcement that the largest bus fleet in the U.S., LA Metro, had converted their entire fleet to RNG. This JV will help Clean Energy to continue to increase its supply of RNG in the years ahead,” Clean Energy CEO Andrew J. Littlefair said in its February press release.
I mention the February press release solely because investors are so short-term in their thinking that they forget that these kinds of projects take a lot longer than one might think. Not much has happened on this front should not be construed as the project is doomed to failure.
The Downside of Buying
I don’t think there’s any doubt that CLNE stock is in the grips of a bear market. From its 52-week high of $19.79 in February, it’s lost 65% of its value. It’s less than $2 from penny stock status.
Plus, if you look at Clean Energy’s extended history, it traded below $5 for the entire five years from November 2015 through mid-December 2020. But, of course, you don’t do that without investors viewing the company’s business model with an extremely skeptical eye.
In June, CLNE stock fell 17% in a single day because Total sold more than 10 million of its shares, reducing its stake from 32% to the mid-20s.
InvestorPlace’s Tom Kerr recently argued that the inability of Clean Energy to generate consistent operating margins suggests that CLNE will return to the $2 to $3 range that it’s historically traded at.
He’s not wrong. This is not a business to invest in if you’re using the funds for your retirement.
The Bottom Line
This is not a stock for the faint of heart. But, unfortunately, I learned the hard way that potential isn’t always the same as a guarantee.
After my experience with CLNE stock, I’m hesitant to recommend anyone buy until it’s at or around $5. At that point, its cash alone will make it a reasonable risk to reward proposition.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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