Natural gas stocks have been robust, as the price of the commodity rebounds from its 2020 lows. Year-to-date, natural gas is now up by more than 115% and has seen multi-year highs.
The United States Natural Gas Fund (NYSEARCA:UNG) returned almost 121% YTD, and the First Trust Natural Gas ETF (NYSEARCA:FCG) is up 94% so far in 2021. In addition, the PowerShares S&P SmallCap Energy (NASDAQ:PSCE) has gone up by 63%.
On the demand side, the hot summer in the Northern Hemisphere led to high demand for natural gas in the electric power sector. Now, the cold-weather season looms around the corner, also increasing the need for natural gas in consumer homes.
According to a recent report by the International Energy Agency (IEA), “Global gas demand is expected to rise by 3.6% in 2021 before easing to an average growth rate of 1.7% over the following three years… By 2024, demand is forecast to be up 7% from 2019’s pre-Covid levels.”
S&P Global (NYSE:SPGI) also highlights the move toward electric vehicles (EVs) is likely to add to the natural gas demand worldwide. Therefore, investors expect the price to stay strong in the coming months.
With this information, here’re three small-cap natural gas stocks to buy for lucrative returns in the coming months:
Natural Gas Stocks: Northern Oil & Gas (NOG)
52 week range: $3.35 – $21.64
Dividend Yield: 0.23%
Oil and natural gas sales were $226 million, up 43% over the first quarter. Adjusted net income came in at $65 million or 92 cents per diluted share, up from $10.7 million, or 21 cents per diluted share, in the prior year.
The company generated free cash flow of $46 million. Total liquidity was $411.2 million at the end of the period.
“This was one of the strongest operational and financial quarters on record for the company,” CEO Nick O’Grady said, “Year-to-date Northern has executed on several large bolt-on acquisitions and significantly improved its balance sheet.”
The company boasts an increasing production profile as well as a solid balance sheet. It is trading near its 52-week high of around $21. It is up 120% YTD and 270% over the past year. And the market capitalization (cap) stands at $1.38 billion.
Despite its surging price, NOG stock is an attractive pick, given the strong momentum for energy prices. NOG shares are trading at 5.40 times forward earnings and 1.80 times current sales.
Ring Energy (REI)
52 week range: $0.43 – $3.36
Ring Energy is an exploration and production company with a focus on oil and natural gas fields in Texas and New Mexico. It primarily sells its oil and natural gas production to end-users and marketers.
Ring Energy released Q2 results in early August. Oil and natural gas revenue increased 349% year-over-year (YOY) to $48 million. GAAP net loss of $16 million translated into 16 cents per diluted share.
However, adjusted net income came in at $7 million, or 7 cents per share, up from $1.5 million, or 2 cents per diluted share, in the prior-year quarter. Free cash flow stood at $5.6 million. Cash and equivalents ended the period at $2.7 million.
“We were pleased with our overall results for the second quarter, including another period of generating free cash flow and further paying down long-term debt,” CEO Paul D. McKinney remarked after the announcement.
Surging energy prices along with the profitability of Ring’s wells indicate a significant increase in liquidity as well as its bottom line.
Favorable market conditions provide the energy group with an opportunity to improve its balance sheet, which suffered from the challenges of the last fiscal year.
REI stock hovers at 2.70 territory. The shares are up a whopping 300% YTD, and the market cap is shy of $300 million. REI shares are trading at 5.80 times forward earnings and 1.60 times current sales.
Natural Gas Stocks: Tellurian (TELL)
52 week range: $0.70 – $5.76
Our last company is Tellurian, an oil and gas exploration and production company. Management has been building a portfolio of natural gas production, LNG marketing, and infrastructure assets.
The natural gas group announced Q2 results in early August. Total revenue surged 300% year-over-year to $25 million. Net loss was $31 million, or 8 cents loss per diluted share, compared to a net loss of $129 million, or 53 cents loss per diluted share, a year ago. Cash and equivalents ended the quarter at $112 million.
Tellurian is building energy infrastructure assets, including a natural gas pipeline and a liquified natural gas export facility, to be operated under the Driftwood name. But it is currently in the early stages of the construction process.
“Tellurian’s strengthened balance sheet and commercial success, combined with supportive market fundamentals, enable Driftwood’s continued progression.” CEO Octávio Simões said regarding the results.
Management announced a 10-year deal to supply energy trader Vitol with LNG from the proposed Driftwood LNG export facility in June. The contract is forecast to generate $12 billion in revenue over its life.
In early May, the company also signed a similar deal with Gunvor Singapore.
TELL stock currently trades in the 3.75 territory and is up almost 190% YTD. The recent gains aren’t surprising, given the significant level of contractual wins.
However, the shares are currently trading at 22 times current sales, an overstretched valuation. Potential investors could consider waiting for a pullback before hitting the ‘buy’ button.
On a final note, Tellurian’s market cap stands at $1.9 billion.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., 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, she has also completed all three 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.