9 Ugly Natural Gas Stocks to Keep on Your Watchlist

natural gas stocks - 9 Ugly Natural Gas Stocks to Keep on Your Watchlist

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The events of 2020 have provided many buying opportunities for savvy investors. I’ve put together a number of lists chocked with stocks that my Portfolio Grader says are positioned for post-pandemic gains. Here are seven pharmaceutical stocks, for example. Or how about seven manufacturing stocks to snap up before they recover?

What about the oil industry? It’s been hammered in 2020. A brutal price war combined with the novel coronavirus pandemic has resulted in historic low oil prices, bargain basement stock prices and a growing list of bankruptcies. Natural gas companies are struggling too.

But it’s possible the situation for this sector may not be as dire as oil’s in the long term. There are a handful of stocks worth keeping an eye on, just in case the situation begins to improve. These 9 natural gas stocks should be on your watchlist:

  • Cheniere Energy (NYSE:LNG)
  • Magellan Midstream Partners, L.P. (NYSE:MMP)
  • EQT Corporation (NYSE:EQT)
  • Phillips 66 Partners LP (NYSE:PSXP)
  • Pembina Pipeline Corp (NYSE:PBA)
  • Enterprise Products Partners L.P. (NYSE:EPD)
  • Apache Corporation (NASDAQ:APA)
  • Cabot Oil & Gas Corporation (NYSE:COG)
  • Royal Dutch Shell plc ADR Class A (NYSE:RDS.A)

To be clear, natural gas stocks are full of risk. Despite their high fundamental and quantitative ratings on my Portfolio Grader, these are all D-rated stocks, and the sector as a whole is still in a very tough spot. Less than two weeks ago, Chesapeake Energy (OTCMKTS:CHKAQ) — one of the biggest U.S. shale gas producers — filed for bankruptcy. And if the country’s sixth largest gas producer is on the ropes, that’s a terrible omen.

However, the decline in production may correct the chronic over-supply that’s plagued the industry, while there’s still hope that liquid natural gas (LNG) exports could eventually open up additional markets.

If you’re looking for energy stocks that are positioned to be big winners going forward, check out my list of “7 Environmental Energy Stocks to Watch.” But if you feel there’s still a play to made in natural gas stocks and have a stomach for risk, these nine are worth keeping an eye on.

Cheniere Energy (LNG)

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Cheniere Energy earns the sole A-rating among gas stocks on this list, and it scores that A for its fundamental grade. A pioneer in the export of liquid natural gas (thus the ticker), Cheniere Energy is betting big on the demand for American LNG exports in the European and Asian markets. With coal use on the decline, that’s not an unreasonable bet.

In its first quarter earnings, LNG stock reported revenue up 22% year-over-year, with export volume up 46%. Despite the circumstances, Cheniere Energy maintained its full-year 2020 guidance and even spent $155 million to repurchase 2.9 million shares of common stock. 

LNG stock had been on the path to recovery from a massive crash in 2015 before stalling last summer. Currently trading at $50.51, Cheniere is crawling its way back to its 2020 high of $66.00 from January.

Magellan Midstream Partners (MMP)

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Magellan Midstream Partners scores a B fundamental grade from my Portfolio Grader. In its first-quarter earnings report, MMP beat Wall Street expectations with EPS of $1.28 (24% higher than the $1.03 consensus). 

The company’s primary business is the storage, transportation and distribution of petroleum products and ammonia. All told, Magellan Midstream Partners owns and operates nearly 11,000 miles of pipelines in the U.S. And Warren Buffet loves pipelines now, so maybe some of that optimism will rub off on MMP.

MMP stock peaked in 2014 when it passed the $86 level, and it’s been in slow decline since. Its 2020 high close of $65.08 dates back to January. After bottoming out in March, MMP’s recovery has all but stalled since May.

EQT Corporation (EQT)

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This Pittsburgh-based company is an interesting case, maintaining a quantitative B grade. The natural gas producer and pipeline operator is focused on the Appalachian region. In fact, EQT is the largest producer of natural gas in America.

EQT stock had been in free-fall since topping $58 in 2014. Even a spike in natural gas prices to close out 2018 couldn’t halt the slide. That continued into early 2020, when it suddenly began showing signs of life. 

Natural gas prices began to creep up slightly in March. In May, EQT announced it was curtailing production and selling off non-strategic assets. The movement in gas prices combined with the company’s strategic moves seemed to re-invigorate EQT. Shares in the company have gained 168% since its mid-March low, and posted 28% growth to date in 2020.

Phillips 66 Partners LP (PSXP)

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PSXP stock scores a fundamental C rating in my Portfolio Grader. Since 2016, shares in the company had been unable to break the $60 ceiling, until last winter. In January, growth in the stock peaked, with PSXP closing at $64.73 on January 16. From there, it was a swift fall to below $25 by mid-March.

Houston-based Phillips 66 Partners is focused on pipelines, terminals, and transportation. That makes the company less sensitive to the price of natural gas, but conversely more reliant on demand. The coronavirus pandemic cut demand, with many factories offline, but any return to normalcy would help to raise the stock  again, as would a cold winter, if that’s in the cards.

At this point, PSXP stock is down 42% so far in 2020. However, based on its stable performance over the past five years, there is potential for this stock to recover back to the $45 to $60 groove.

Pembina Pipeline Corp (PBA)

oil pipelines
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Another gas company with a fundamental C rating, Canada’s Pembina Pipeline is focused on the transportation and storage of natural gas and oil from Western Canada. The company also operates a large natural gas processing complex.

PBA stock had been putting together a decent year-long run before 2020’s challenges put an end to it. From the start of 2019 to mid-February, PBA was up 36%. Pretty impressive for a natural gas stock. Then came a punishing drop, with BPA losing 60% of its value in just three weeks.

Trading as low as $16.09 in mid-March, Pembina Pipeline stock is now nearing $24. Investment analysts are convinced that PBA’s recovery will continue, although not even the most optimistic are calling for a return to those February values any time soon. Still, a predicted 20% upside over the next 12 months makes this one of those natural gas stocks at least worth keeping an eye on.

Enterprise Products Partners L.P. (EPD)

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Shares in Enterprise Products Partners earn a respectable B-rating for fundamentals in my Portfolio Grader.

This is a company that’s stuck in the middle of the oil price war and coronavirus pandemic. Enterprise’s involvement in the industry is on the distribution and transportation end, so low prices don’t directly impact it the way they have devastated oil and gas producers. That being said, low pricing in the sector still rocked EPD stock in the spring. Enterprise Products stock has been in recovery mode since March, but remains down 39% at this point in 2020.

The company’s stock hadn’t been doing much over the past five years, bouncing between $25 and $30. Given the huge surplus of natural gas, and expected slump in demand for oil, that’s hardly surprising.

There’s nothing in future trends to suggest EPD stock will suddenly going to kick into growth mode, but as conditions normalize, an eventual return to that $25 to $30 level is possible. In that case, the current pricing around $17.50 has solid upside potential.

Apache Corporation (APA)

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Oil and gas exploration isn’t a great space to be in right now. Demand for both has dropped as a result of the pandemic. And natural gas has been in oversupply for years.

Apache — which manages a quantitative C rating — has felt the full effect of being a producer. In the first quarter, the company reported an adjusted loss of 13 cents per share. Reacting to the current market for oil and natural gas, Apache reduced its dividend and announced it will be focusing on debt reduction. In addition, Apache has been shutting down much of its U.S. drilling operations, shifting resources to higher margin operations in the North Sea and Egypt.  

Despite the maneuvering, APA stock has not been able to outrun the effects of the pandemic and the oil price war: it’s down 50% so far in 2020.

Cabot Oil & Gas Corporation (COG)

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Cabot Oil & Gas is one of the rare natural gas stocks that’s actually in positive territory for 2020, albeit just barely. After spending most of 2019 on a downhill slide (it lost 24% that year), COG stock started 2020 at $17.23 and closed as high as $22.37 in June. It’s now in 2% growth territory for 2020. It earns a C fundamental rating in my Portfolio Grader.

Why would an oil and gas exploration company with much of its production tied to fracking in Pennsylvania be in such a strong position? Why isn’t COD stock underwater like so many other petroleum companies?

As Investorplace’s Vince Martin explains, COG is really a pure natural gas play. With oil producers shutting down, the production of natural gas as a by-product slows.

Add in increased demand for natural gas and LNG as coal plants shut down, and the future looks brighter for natural gas producers like Cabot Oil & Gas. 

Royal Dutch Shell plc ADR Class A (RDS.A)

Shell stock is a Zombie as Long as It Focuses on Fossil Fuels
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Royal Dutch Shell is one of  the world’s largest companies. There have been some ups and downs, but over the past five years, RDS.A stock (which earns a C fundamental rating in my Portfolio Grader) has been relatively stable. The company has been generous with dividends, especially when compared to other petroleum giants.

However, even its size couldn’t protect this oil and gas giant from the events of 2020. After hitting its 2020 high close of $60.96 on January 6, RDS.A rapidly dropped to $20.62 by March 18 — losing nearly two thirds of its value. The dividend was cut for the first time since World War II, and its share buyback program was suspended. Shares have bounced around between $30 and $40 since.

If you’re willing to bet that oil and natural gas prices are going to recover to 2019 levels, then Royal Dutch Shell stock has upside. But that’s far from a sure bet at his point, and any recovery is likely to be a long one. Still, it’s worth watching this natural gas stock in case the global economy recovers more quickly than expected and drives up demand.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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