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An Update on the Biggest Long-Term Trend in the Market Today

By Larsen Kusick, analyst, Phase 1 Investor
Thursday, October 4, 2012

"We're all in...
Joel Feucht is an executive with Caterpillar, the world's largest producer of heavy equipment. And at a conference last week, he sounded like he was about to lead the crowd into battle.
"We're the biggest product manufacturer, and we just made the decision to go all in, Texas hold 'em style.
I looked around at the 800-plus industry professionals in attendance... If there were any doubts in the room that the energy trend we've been telling you about for years is exploding, Feucht laid them all to rest last week...
I was in Houston attending this year's "High Horse Power" (HHP) Summit when I heard Feucht make his "all in" declaration.
Feucht is Caterpillar's (NYSE: CAT) director of gas engine strategy. He told the crowd of managers and industry professionals that his $55 billion company was now "fully committed" to building equipment that runs on natural gas. "We don't need to look anymore," said Feucht, "Our conclusion is that large engines are goin' gas.
The massive interest in using natural gas as a fuel is a familiar story to longtime Growth Stock Wire readers... My colleague Frank Curzio and I have been writing about this megatrend and the profit potential it offers early investors for years...
Over the past 12 months, the price to manufacture a natural gas engine has come down considerably. And even though natural gas prices have rebounded from their super-depressed lows, the fuel is still cheap... And it will likely stay cheap thanks to America's abundant supply.  
This has made it more cost-effective for trucking fleets to switch their engines to run on natural gas instead of diesel fuel.
Right now, the cost savings is almost $1.50 a gallon. If the average heavy-duty truck covers 100,000 miles annually, at five miles per gallon, that equals 20,000 gallons per year in fuel. A $1.50-per-gallon savings results in roughly $30,000 a year per truck. Megaretailer Wal-Mart, for instance, has a 7,000-truck fleet. So switching to natural gas would save the company $210 million a year on fuel costs.
The economics work... which is why Wal-Mart (NYSE: WMT), UPS (NYSE: UPS), Waste Management (NYSE: WM), and other large U.S. trucking fleets are switching over to natural gas right now.
But as Feucht confirmed at the HHP Summit last week, that's just the beginning of this trend's potential. It's quickly spreading to the "high horse power" engine market... where the cost savings are even bigger. Let me explain...
Large "high horse power" engines are used in things like mining equipment, locomotives, and drill rigs. And they require the energy equivalent of 50-60 diesel trucks...
Natural-gas-engine-designer Westport Innovations, for example, just began working on a new engine for locomotives. In June, the company announced a partnership with Caterpillar – one of the two major manufacturers of diesel-electric locomotive engines.
The railroad industry is a perfect candidate for switching to natural gas. Trains run along fixed paths, which means a few fueling stations would be enough for thousands of miles of travel. Diesel fuel costs make up about a quarter of railroads' operating expenses. A cost savings of even $1.50 per gallon of diesel would equate to billions of dollars for major railroad companies like Union Pacific.  
That's why the crowd in Houston last week included representatives from railroad, mining, and drilling companies – and even marine-related organizations, like the U.S. Coast Guard.
Of course, the shift to natural gas isn't an "overnight" trend. At the HHP Summit, a Westport manager said the company aims to have a demo model of a natural gas locomotive engine ready by mid-2013. But a fully developed, ready-to-market version won't be ready until 2014.
And it will take years to build out the infrastructure that's needed – like ground-based storage tanks and pipeline networks – for every large engine to run on natural gas.
The "natural gas as a fuel" megatrend is still in its infancy. We have a massive supply of natural gas. It's dirt-cheap. Trucking fleets have already begun making the switch from diesel to natural gas to save money. And the large-engine market is quickly following suit.
As Feucht said at the end of his speech, "The products are coming... faster than most people here probably realize." 
And getting in early on this trend could result in huge profits for investors.
Good investing, 
Larsen Kusick

Further Reading:

If natural gas becomes an everyday transportation fuel, investors could make huge returns. In 10 years, you could own shares of one of the premier energy companies in America. Learn more here: This Speculative Natural Gas Play Has Enormous Upside Potential.
In the wake of last year's Japanese tsunami, countries around the world are looking to replace nuclear power with natural gas to secure their long-term energy needs. That has sparked a massive, multibillion-dollar wave of spending around the globe. See how to benefit here: The Death of Nuclear Power Is Fueling This Tiny Energy Sector.

In The Daily Crux
Market Notes
Housing-related stocks keep surging... Home Depot and Sherwin-Williams break out to fresh all-time highs.
Beware of rising food prices... wheat, soybeans, and corn are all up 30%-plus over the past 12 months.
"Death of the PC" victims Hewlett-Packard and Dell plunge to fresh multiyear lows... both are down 35%-plus over the past six months.
Big drug companies continue their slow and steady uptrend... fresh highs for Merck and Eli Lilly.
Market Watch
Symbol Price
S&P 500 1450.99 +0.4% +32.0%
Oil (USO) 32.61 -4.1% +9.7%
Gold (GLD) 172.41 +0.2% +7.1%
Silver (SLV) 33.51 +0.0% +13.6%
U.S. Dollar 79.96 +2.9% +1.5%
Euro 1.29 -0.2% -2.2%
Volatility (^VIX) 15.43 -1.8% -66.1%
Gold Stocks (^HUI) 505.24 -1.7% -2.8%
10-Year Yield 1.62 +0.0% -9.0%

World ETFs
Symbol Price
USA (SPY) 145.09 +0.4% +34.8%
S. Korea (EWY) 59.31 +0.2% +32.0%
Singapore (EWS) 13.45 -0.2% +31.5%
S. Africa (EZA) 65.73 -2.3% +21.0%
Taiwan (EWT) 13.49 -0.4% +20.8%
China (FXI) 34.91 0.0% +20.6%
Canada (EWC) 28.53 -0.7% +18.8%
Lat.America (ILF) 42.55 -0.8% +16.0%
Russia (TRF) 15.49 -0.4% +10.2%
India (IFN) 23.52 +0.0% +4.8%
Israel (ISL) 13.13 +0.6% +4.8%
Japan (EWJ) 9.06 -0.4% -0.6%

Sector ETFs
Symbol Price
Construction (PKB) 16.11 +1.9% +70.1%
Media (PBS) 16.77 +0.7% +50.1%
Financials (IYF) 59.17 +0.9% +43.1%
Consumer Svcs (IYC) 87.10 +0.7% +41.8%
Retail (PMR) 25.41 +0.6% +39.7%
Real Estate (IYR) 64.65 +0.3% +39.1%
Health Care (IYH) 86.15 +0.7% +38.8%
Biotech (PBE) 24.54 +0.2% +38.3%
Insurance (PIC) 17.07 +0.4% +30.7%
Water (PHO) 19.62 +0.7% +38.1%
Big Tech (QQQQ) 69.11 +0.6% +36.6%
Industrials (IYJ) 71.02 +0.4% +36.1%
Software (PSJ) 27.82 +0.7% +34.4%
Telecom (IYZ) 25.42 -0.4% +33.2%
Defense (PPA) 19.98 -0.3% +28.5%
Basic Mat (IYM) 67.27 -0.4% +26.3%
Transportation (IYT) 88.36 +1.2% +23.5%
Semis (PSI) 13.80 -0.7% +20.3%
Nanotech (PXN) 6.31 +0.3% +15.5%
Utilities (XLU) 36.59 +0.5% +15.0%
Oil Service (OIH) 39.18 -2.5% +0.0%
Big Pharma (PPH) 41.47 +0.3% +0.0%
Alt. Energy (PBW) 4.08 -1.2% -15.3%

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