The U.S. has been using natural gas for two centuries, making natural gas stocks a source of profits for a long time.
Prices of energy commodities like natural gas are important for consumers and investors alike. Earlier in the year, natural gas prices in the U.S. dropped to 25-year lows. As a result, in early spring, shares in many players in the sector hit 52-week lows.
Most natural gas stocks have staged a remarkable comeback in price since then, there may still be further upside left for long-term investors. At present, the price of natural gas is around $1.8 per MMBtu.
The American Public Gas Association says that natural gas supplies more than half of the energy consumed by residential and commercial customers, and more than 40% of the energy used by industry. The commodity is essential in our daily lives.
In July, legendary investor Warren Buffett took a bet on natural gas. Dominion Energy (NYSE:D) sold its natural gas assets to Buffett’s Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B). The deal was valued close to $10 billion.
With all that in mind, here are three natural gas stocks that are worth your time today:
Natural Gas Stocks: Apache Corporation (APA)
52-week range: $3.80-$33.77
Dividend yield: 0.7%
Houston-based Apache’s history goes back to the 1950s. In 1955, its first wells were drilled in the Cushing Field in Oklahoma. Its shares were listed on the New York Stock Exchange in 1969. Today, it is a major exploration & production (E&P) group, boasting geographically diversified reserves with established operations in the U.S., U.K., and Egypt.
In January, Apache and its partner Total S.A. (NYSE:TOT) announced a significant oil discovery offshore Suriname. Apache is also No. 411 on the Fortune 500 list.
Earlier in the year, management reduced its dividend and put debt reduction high on the agenda. First-quarter earnings released in May included revenues of $1.28 billion, which were down 22% from a year ago. The company posted a loss of $51 million, or 13 cents per share, on an adjusted basis. Management did not provide production guidance for the second quarter.
CEO John Christmann highlighted the effect of the pandemic on the company.
“We have taken several decisive actions … including reducing our planned 2020 capital program, reducing our dividend, initiating a hedge position to protect from further near-term downside oil price exposure and increasing the cost-saving measures of the organizational redesign that we began last year.”
These steps are likely to help the company conserve cash flows in Q2.
Year-to-date, APA stock is down around 45%. I’d look to buy the dips.
Kinder Morgan (KMI)
52-week range: $9.42-$22.58
Dividend yield: 7%
Midstream industry giant Kinder Morgan owns and operates gas pipelines and terminals. So, the company moves gas from the shale basins where it’s produced to cities, neighborhoods, businesses where it’s consumed. Midstream operators typically charge gas producers a fee based on the amount of gas that goes through the pipeline.
On July 22, the company released Q2 earnings that included adjusted earnings per share of 17 cents, 5 cents below from the year-ago quarter’s 22 cents. Lower contributions from the Tennessee gas pipeline was part of the decline in revenue.
The company has a relatively strong balance sheet and asset base. Investors may see potential acquisitions form management in the coming quarters, especially if energy prices stay depressed.
Since the release of second-quarter results, KMI stock fell from about $15 to $14. Year to date, the shares are down around 33%. In case of further falls in the coming weeks, investors may consider buying into the company as a long-term play on natural gas.
Magellan Midstream Partners (MMP)
52-week range: $22.02-$67.76
Distribution yield: 9.8%
Magellan Midstream Partners is one of the largest operators of refined product pipelines in the U.S. It concentrates on the storage, transportation and distribution of petroleum products and ammonia.
The company can store more than 100 million barrels of petroleum products such as gasoline, diesel fuel and crude oil. MMP’s large network of crude oil pipelines provide a steady source of cash flow.
In early May, it reported first-quarter results. Net income was $287.6 million, compared to $207.7 million for first quarter 2019. The increase was primarily due to mark-to-market (MTM) adjustments for hedge positions in commodity-related activities. Diluted net income per common unit was $1.26, compared to 91 cents in first quarter 2019. Lower operating expenses, higher gas liquids blending margins contributed to the positive results.
The company declares distributions and not dividends because it is a master limited partnership (MLP). MLPs get tax-advantaged status for paying out almost all of their operating cash flow as distributions to its unitholders (i.e., shareholders). The yield currently stands at 9.8%.
The group will announce second-quarter 2020 financial results on July 30. So far in the year, MMP stock is down over 33%. Long-term investors may consider buying into the share price, especially if there is a decline toward the $62.50 level in the coming weeks.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.