Natural gas prices finally are showing some signs of life. Prices have rallied of late amid projections for a colder winter — and higher natural gas demand. A current national average near $3.20 represents an eight-month high — despite the recent dip in Canadian natural gas.
Those higher prices are good news for these four companies, who have struggled as natural gas prices plunged from levels seen earlier in the decade. Price declines were driven by substantially higher production from US shale, along with lower demand. Long-term concerns do remain, with “associated gas” — created during oil drilling — potentially adding supply as pipeline capacity and potentially regulatory costs increase.
Still with the market looking more balanced, $3+ natural gas could stick around for a while, and natural gas could outpace crude oil, given global economic concerns. If that turns out be to the case, energy stock investors will do well with these four stocks.
4 Natural Gas Stocks to Buy: EQT (EQT)
EQT Corporation (NYSE:EQT) would seem to be the easy play here. The nation’s largest producer of natural gas by definition would seem to be the largest beneficiary of higher natural gas prices. EQT stock hasn’t really rallied much, either. It’s down 3% since the beginning of the month and sits 36% below its 52-week high. A consensus price target around $64 suggests a 37% bounce from current levels.
The one potential catch here is that EQT isn’t necessarily easy to understand. It acquired Rice Energy for $6.7 billion last year. It’s fought with activists, lost its CEO, and is spinning off its midstream business.
That might be a good thing, however. The complexity of the business should ease after the spinoff and after the Rice acquisition is lapped. Meanwhile, production costs are going down, and cash flow is going up. EQT, like most producers, does have near-term production hedged, but longer-term strength in natural gas prices should help margins.
All told, there’s a nice combination of catalysts here, and a reasonably cheap price. The combination makes EQT one of the better, if not the best, natural gas stocks to buy at the moment.
4 Natural Gas Stocks to Buy: Chesapeake Energy (CHK)
Chesapeake Energy (NYSE:CHK) is one of the biggest victims of the shale energy bust. The company that pioneered “fracking” has been weighed down by debt as natural gas prices have collapsed. A stock that once traded above $60 (however briefly) now trades below $5.
But all is not lost. CHK remains an intriguing high-risk, high-reward play, as I wrote last month. The balance sheet is still debt-heavy — but Chesapeake has time. Execution has improved, and the company is making a big bet in the Powder River Basin in Wyoming.
Higher natural gas prices could be a huge help. Indeed, CHK stock likely would be one of the biggest beneficiaries of $3+ natural gas. CHK’s market cap of $4 billion is less than half its debt load. Increase the value of the business 10%, and Chesapeake Energy stock climbs roughly 30%.
There are risks here. Chesapeake has pivoted more toward oil of late, selling its gas-heavy Utica Shale operations for $2 billion this summer and focusing on oil in Wyoming and Texas. That could signal another misstep for a company that has changed its focus several times, as InvestorPlace’s Dana Blankenhorn has pointed out.
This story still can go south. But if natural gas prices are rising — and keep rising long enough to outlast Chesapeake’s current hedges — CHK stock could be a huge winner.
4 Natural Gas Stocks to Buy: Antero Resources (AR)
Like EQT, Antero Resources (NYSE:AR) is looking to simplify its structure. It’s merging its two midstream operators, Antero Midstream Partners (NYSE:AM) and Antero Midstream GP LP (NYSE:AMGP). Antero Resources will receive at least $300 million in cash as part of the deal (given its existing ownership of part of both companies), which will fund a $600 million share buyback program. That program will be enough to buy back over 10% of shares currently outstanding — and perhaps provide some juice to AR’s recently stagnant share price.
Add to that higher natural gas prices, and AR could see some nice gains. Acreage in the Marcellus and Utica shales could even make the company a takeover target. At less than 10x forward earnings, none of the good news looks priced in. And AR could rocket if prices drive both earnings, and the stock’s multiple, higher.
4 Natural Gas Stocks to Buy: Cabot Oil & Gas (COG)
The big news for Cabot Oil & Gas (NYSE:COG) is that the Atlantic Sunrise pipeline finally is heading into service. CEO Dan Dinges said in a recent release that the new project would ease congestion and allow for better pricing and more production going forward.
The timing couldn’t better for COG if indeed natural gas prices are headed higher. More production, higher pricing and lower costs could be an explosive combination. With a clean balance sheet as well, COG looks like one of the more sensible natural gas stocks to buy at the moment.
As of this writing, Vince Martin has no positions in any securities mentioned.