Stock pick: Cheniere Energy

The company's share prices are moving higher, due in part to the federal government's expanded plans to export liquified natural gas.

By Jim J. Jubak Sep 12, 2013 6:06PM

Image: Natural gas plant (© Kevin Burke/Corbis)On Thursday, shares Cheniere Energy (LNG) hit a new 52-week high of $33.76. As of the close, they’d dropped back slightly to $33.10. That still puts the stock up 18.5% from its August 30 close.


A big part of that is Wednesday's news -- that the U.S. Department of Energy had approved a permit for Dominion Resources (D) to export liquefied natural gas from an existing liquefied natural gas import terminal in Maryland.


It’s unusual, I grant you, for a company’s stock to rise on news that a competitor has received approval to enter the market. And it’s even more unusual when that company’s stock rises more on the approval than the competitor’s does.


But it actually makes sense here. The permit for Dominion Resources, is the fourth liquefied natural gas permit that the Department of Energy has approved (and the third this year.) Cheniere’s Sabine Pass export terminal, scheduled to begin exports in 2015, was the first plant to win Department of Energy Approval.


As the first company to begin exports from the United States, Cheniere will have the ability to secure a major portion of the price difference between cheap U.S. natural gas ($3.34 per million BTUs) and the price of liquefied natural gas exports as landed in Japan ($15.50 per million BTUs), India ($13.32), or China ($14.95.)


Dominion’s terminal isn’t projected to begin exports until 2017, so it certainly won’t cut into excess first-mover profits at Cheniere. (Alert for income investors: Dominion has said it will form a master limited partnership that hold its natural gas assets—the Maryland terminal and natural gas pipelines--next year.)


The approval for Dominion Resources also moved Cheniere’s proposed Corpus Christi terminal closer to approval. After this decision that project is now fifth in line at the Department of Energy -- and it may even be higher in reality, since there’s doubt that two West Coast terminal projects ahead of it on the list will be approved given strong opposition from environmentalists in Oregon and from Oregon’s Ron Wyden, the chairman of the Senate Energy Committee.


Approval of the Corpus Christi terminal would add about $14.50 a share to Cheniere’s share price, Credit Suisse calculates. So anything that moves that terminal closer to permitting is a big plus for Cheniere’s stock.


On the news I’m moving my target price for Cheniere Energy to $38 from the current $34 (Cheniere is a member of my Jubak’s Picks portfolio). Other members of that portfolio that benefit from this news and the acceleration of construction and potential liquefied natural gas exports include Chicago Bridge & Iron (CBI) and Chesapeake Energy (CHK).


Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Cheniere Energy and Chesapeake Energy as of the end of June. For a complete list of the fund’s holdings as of the end of June see the fund’s portfolio.


MSN Money on Twitter and Facebook

Like us on Facebook: MSN Money and Top Stocks

Follow us on Twitter: @msn_money and @topstocksmsn

1Comment
Sep 12, 2013 9:49PM
avatar
There are $630 TRILLION in derivatives outstanding, Jim. They prioritize ahead of stocks in liquidation. People who own stocks MIGHT benefit from sloppy seconds or thirds after Law Biz gets their share. It won't end well.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125
125 rated 1
264
264 rated 2
485
485 rated 3
679
679 rated 4
640
640 rated 5
617
617 rated 6
632
632 rated 7
493
493 rated 8
276
276 rated 9
153
153 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.