It’s not surprising that energy stocks have recovered from their pandemic lows. While most of the attention has been focused on the prices we pay at the gas pump, natural gas has been steadily rising for the last year. Consequently, some investors are searching for natural gas stocks to buy as many prepare to fire up their furnaces for a cold winter.
But the recent surge in natural gas is going beyond supply and demand. In Europe, there are concerns of natural gas shortages, as Russia has not topped up gas supplies over the summer. And while the United States may not be affected by these geopolitical concerns for now, an active hurricane season has shut in some production.
With prices already at 7-year highs, investors are wondering if natural gas prices will continue to rise or if this is a bubble that’s about to burst. It’s true that a mild winter could send prices crashing. However, according to analysts, natural gas prices may reach 13-year highs this winter.
If that happens, natural gas stocks will be heating up. Here are seven stocks that are likely to benefit from that scenario:
- EQT Corporation (NYSE:EQT)
- Cheniere Energy (NYSE:LNG)
- Antero Resources Corporation (NYSE:AR)
- Cabot Oil (NYSE:COG)
- Chevron Corporation (NYSE:CVX)
- Western Midstream Partners (NYSE:WES)
- Range Resources Corporation (NYSE:RRC)
Stocks to Buy: EQT Corporation (EQT)
EQT stock is up 61% in the last 12 months. The company reported earnings in late July, and mixed results may be contributing to the sentiment the stock is getting from analysts. The company’s net loss increased last quarter despite posting improved revenue. That’s not a sign of an efficient operation.
Additionally, EQT’s financial picture is troublesome in other ways. On a trailing 12-month basis, the company has negative profit margins.
This illustrates the risks and rewards of investing in a company so closely tied to a commodity like natural gas. You’re speculating on whether prices will rise or fall.
However, with natural gas prices expected to climb this winter, EQT stock will likely move higher. Analysts agree and have a consensus price target of $27.89. That’s 35% higher than the $20.63 the stock trades hands for at this moment.
Cheniere Energy (LNG)
Whereas EQT is one of the largest natural gas producers, Cheniere Energy is a leading producer of liquefied natural gas (LNG). The company was the first U.S. company to export LNG in 2016. Today, it exports to 35 countries and regions worldwide.
In August, the company announced it completed the sixth train at its Sabine Pass LNG export plant in Louisiana. And on Sept. 22, U.S. regulators gave the company permission to introduce feed gas, which keeps Cheniere on track for commercial service in the first half of 2022.
At the close of the markets on Sept. 22, LNG stock was up 47% for the year. Since then, the stock hit a 52-week high of $100, bringing it close to the consensus price target of analysts. However, recent analyst ratings suggest the stock may be ready for another leg up if demand increases in late fall and winter.
Stocks to Buy: Antero Resources Corporation (AR)
Antero Resources Corporation is engaged in the effective but controversial practice of fracking, or the fracturing of hard shale layers.
The company’s primary business is in hydrocarbon exploration. However, it also develops natural gas. Fracking was a major issue in the most recent presidential election, and despite its negative impact on the environment, the practice continues for now.
Antero describes itself as the “most integrated NGL and natural gas business” in the United States. The company’s reserves are almost exclusively found in the Marcellus Shale formation that runs through the Appalachian Basin. According to some estimates, this site has 84 trillion cubic feet of recoverable natural gas.
AR stock has performed magnificently, up 246% in 2021. The stock is rallying after a steep drop-off in August. The stock has nearly reached the consensus price target of analysts. However, recent analyst estimates give it a higher upside.
Cabot Oil (COG)
Like Antero, Cabot Oil also has assets in the Marcellus Shale formation. However, unlike Antero, COG stock has not had the same strong performance. In fact, it is only up 33% in 2021.
In fact, Navallier’s article, which was written just a month ago, advised investors to stay away from COG stock. And in fairness, the stock is currently butting up against its 52-week high as well as its consensus price target.
However, this article is all about optimism. And if, as some analysts believe will happen, natural gas prices continue to rise as temperatures fall, it stands to reason it will be a tide that lifts all stocks in the sector. Investors may be feeling the same way, as short interest in COG stock has come down in the last 30 days.
Stocks to Buy: Chevron Corporation (CVX)
Chevron stock is down from its highs set earlier this year. One reason for this is that investors generally see oil and gas stocks as a hedge against inflation.
This means that if CVX stock is dropping, investors might think that inflation is as transitory as the Federal Reserve believes. However, as one of the largest natural gas businesses in the United States, Chevron stands to gain if prices increase later this year.
It’s also worth noting that Chevron managed to increase its dividend in early 2021. Not long after a time when many oil companies were either cutting or suspending dividends, that’s a remarkable accomplishment. This is one reason why Chevron is part of the exclusive Dividend Aristocrat club.
Analysts believe CVX stock has an upside of nearly 18.7% from its current price around $103.
Western Midstream Partners (WES)
So far, this list has focused on natural gas stocks that offer potential for share price growth. That’s not normally the case with Western Midstream Partners, which operates as a limited partnership.
However, the American economy is recovering after a year when demand for oil and gas was restricted due to the pandemic. And WES stock is up 49% year-to-date.
However, the company’s business model is designed to deliver steady demand in both good and bad times. So whether the stock is going up or going down, shareholders have direct ownership in the company and therefore are paid a piece of net revenue.
And like a real estate investment trust (REIT), Western Midstream Partners rewards shareholders by way of a dividend. In the case of WES stock, that dividend comes with a juicy 6% yield.
As long as demand for natural gas demand remains high, investors get the best of both worlds with WES stock.
Stocks to Buy: Range Resources (RRC)
The last of the natural gas stocks on this list is Range Resources. RRC is an exploration and production (E&P) company that is almost exclusively focused on natural gas and natural gas liquids. This makes sense, because natural gas is the sector of the market with the best profit margins.
It’s not a huge company, although its market cap has grown from $3.7 billion to $5.7 billion in a short period of time. Like a couple of other companies on this list, Range Resources has a significant portion of its assets in the Marcellus Shale formation.
RRC stock is bumping up against its 52-week high and is trading significantly above the consensus price target of analysts.
Plus, of all the stocks on this list, Range Resources is the only one with short interest above 10%. That’s usually an indication that investors may be looking to sell. On the other hand, if it draws the attention of the Reddit crowd, it could put the company’s stock in line for a short squeeze.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.