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If Obama Blesses Natural Gas...

The Democrats’ win in November crushed Cramer’s enthusiasm for natural gas stocks. While this might be the cleanest fossil fuel we have, it’s still a fossil fuel. And the Dems, new President Barack Obama included, tend to curl their lips in derision at the mere mention of anything that emits CO2.

But last week, Chesapeake Energy’s Aubrey McClendon told Mad Money that Obama might be more of a friend to nat gas than we thought. As a senator, he introduced legislation to increase the tax credit for purchasing natural gas-powered vehicles. And his chief of staff, former Illinois Representative Rahm Emanuel, worked on a bill to increase domestic production of nat gas cars and trucks.

If McClendon’s right, then a speculation play on natural gas might work right now. Admittedly, this thesis, that nat gas would serve as a transition fuel until a more viable renewable energy source was found, failed in the past. Hence the word “speculation.” So proceed with caution and the knowledge that any nat gas stock you buy carries with it some – if not a lot of – risk.

Cramer likes Fuel Systems Solutions, a stock that’s down 36% since his Aug. 1 call. But that aside, this is a company whose business might not rely wholly on Washington’s yea or nay vote for natural gas. It is true that Fuel Systems Solutions sells its pressure regulators, fuel injectors and flow-control valves for nat gas vehicles to companies like Toyota Motor, Cummins, Caterpillar, GM and Ford. And as the global economic slowdown hurt them, inevitably FSYS took a hit as well. But there’s an overseas catalyst here that could allow FSYS to sidestep these problems.

The European Union expects to have 20% of its vehicles powered by liquefied petroleum by 2010. Fuel Systems Solutions, Cramer thinks, will be the go-to company to make this happen. Plus, countries in Europe, as well as Australia, offer incentives to consumers who choose these cars, potentially creating even more business for FSYS. So while the U.S. may be lagging behind, other parts of the world are not. And this company, whose sales are 77% international, is taking advantage.

Now if President Obama does decide natural gas is worth the investment, then Fuel Systems Solutions should go higher. There’s virtually no nat gas vehicle penetration in the U.S., so it's all up from here. And that’s why almost any positive news about the fuel is good news for this stock, too.

Fuel Systems Solutions has dropped to $26 and change from $61, giving it a 12.7 price-to-earnings multiple despite a long-term growth rate that’s twice that number. In Cramer parlance, FSYS is way cheap. The company has beaten the Street’s earnings estimates for the last four quarters and expects to deliver $2.09 a share this year, though 2009 will be slower than usual. FSYS also holds $34 million in cash but owes only $13 million in debt. So unlike a lot of speculation plays, Fuel Systems Solutions seems to be on solid financial footing.

But, of course, the usual rules apply: Wait before you buy, use limit orders when you do, etc. As we said, natural gas is a risky investment right now.





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