My latest column is up at RealMoney.
Chart Industries (GTLS) is a leading independent global manufacturer of highly engineered equipment used in the production, storage and end-use of hydrocarbon and industrial gases. As an infrastructure supplier to the energy industry, Chart lies at the intersection of two major investment themes that I think will continue to work for some time.
The advertising bombardment relating to T. Boone Pickens’ “Pickens Plan” can’t hurt Chart. A central component of the plan is to increase the use of natural gas in transportation.
For the Pickens Plan to work, money will have to be spent building out an infrastructure to transport the gas from remote areas to those where it is needed. Enter Chart, which supplies engineered equipment used throughout the global liquid-gas supply chain.
While the Pickens Plan ads may increase awareness of natural gas, Chart has been doing fine without it. Sales grew 24% in 2007, but backlog grew at twice that rate. The current backlog amounts to more than 60% of projected 2008 sales, offering high visibility.
What’s more, demand continues to rise. In a recent note, Lehman Brothers estimated that the expansion plans of a single customer (Energy World Corporation) could mean more than $250 million in additional orders for Chart.
For a company that looks like it can generate 20% annual growth, I don’t really require the free-cash-flow yield to be higher than the 3.2% return on five-year Treasury bills. The growth alone is sufficient reward for the risks involved.
Seen another way, the average free-cash-flow yield in the S&P 1500 Supercomposite is about 3.1%, and the average growth forecast is 14%. With Chart, you get higher growth at a lower valuation.
If Chart can grow its cash flow 20% over the next year and increase its valuation so that the free-cash-flow yield matches the Treasury yield, the stock could more than double in that time. That would make for a (stock) chart I could appreciate.
Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.