While oil prices have been range-bound for much of this year, the interesting area that many energy investors are turning their attention to is natural gas, and with good reason. The National Development and Reform Commission reported July demand growth of 23.3% year over year, following 28.6% growth in June. Year to date, demand is up 16.8%. While the numbers are impressive, another key metric is that year to date the inventory build is a very modest 136 billion cubic feet from last year’s 237 billion cubic feet.
A new Jefferies research note, from which the above mentioned data was sourced, also notes that current inventory is 12% above last year’s level only because it started at such a high level due to the warm winter. The firm makes the case that with demand growth approaching 17%, a normal winter could cause a very significant supply shortage.
We screened our 24/7 Wall St. research database for energy companies that are large natural gas suppliers, and found four top stocks for investors looking to stay long energy but unsure of oil pricing to consider.
This is a top natural gas play for investors to consider. CONSOL Energy Inc. (NYSE: CNX) is one of the largest independent natural gas exploration, development and production companies, with operations centered in the major shale formations of the Appalachian basin.
The company’s divisions include Exploration and Production (E&P), Pennsylvania (PA) Mining Operations and Other. The E&P division operates through four segments — Marcellus Shale, Utica Shale, Coalbed Methane and Other Gas — which produce pipeline quality natural gas for sale primarily to gas wholesalers.
CONSOL’s exploration and production division focuses on Appalachian area natural gas and liquids activities, including production, gathering, processing and acquisition of natural gas properties in the Appalachian Basin. The Other Gas segment is primarily related to shallow oil and gas production and the Chattanooga Shale in Tennessee.
The Wall Street consensus price target for the shares is $21. The stock closed trading on Wednesday at $14.34, giving investors solid upside potential to the target.
Cabot Oil and Gas
Given the potential for shortages, this top natural gas play also could be a very timely pick. Cabot Oil & Gas Corp. (NYSE: COG) produces mostly natural gas in the United States, with operations primarily in Appalachia and an ancillary position Eagle Ford. The company has lined up very high-quality growth assets in the Marcellus Shales and is aggressively moving to develop these fields. Production and reserves are 96% natural gas.
U.S. energy firms are scrambling to finish a slew of pipelines that will unleash rich reserves of shale gas in Pennsylvania, West Virginia and Ohio as the nation prepares to become one of the world’s top natural gas exporters. Cabot figures to be a big player in this evolution and offers solid value and current trading levels.
Shareholders receive just a 0.8% dividend. The consensus price objective is $29.50, and shares closed trading on Wednesday at $24.79.
This company is expected to have a huge amount of its production come in as natural gas. EQT Corp.’s (NYSE: EQT) superior cost structure and above-average growth may help it exploit stable and rising natural gas prices. With an increasing reserve structure and a projected higher number of Marcellus wells to be drilled in the coming five years, the company exhibits industry-leading organic growth momentum.
With more than 125 years of experience, EQT continues to be a leader in the use of advanced horizontal drilling technology. This technology is designed to minimize the potential impact of drilling-related activities and reduce the overall environmental footprint. That is very shareholder friendly. Plus, the company is a low-cost producer with a very strategic midstream presence.
EQT’s superior cost structure and above-average growth may help to ease concerns some investors have about current struggling natural gas prices. The company’s midstream holdings are considered among the best in the industry, and with a $1.75 billion stake in Equity Midstream Partner, the company has a combined $10 billion in midstream holdings.
EQT investors receive a 0.16% dividend. The posted consensus price target is $76.08. The stock closed Wednesday at $61.78.
This company is a defensive natural gas stock that many on Wall Street like now. Range Resources Corp. (NYSE: RRC) is primarily a producer of natural gas with operations in Appalachia, Oklahoma, Louisiana and Texas. The company specializes in developing low-risk, long-lived natural gas reserves in unconventional gas formations. Reserves at the end of 2016 were 12.1 trillion cubic feet equivalents, of which 65% was natural gas.
While the company has cautioned that if oil and gas prices stay at current levels medium growth will drop from a projected 20% to 10% to 20%, the $3 level and higher for natural gas could provide strong earnings the rest of the year and into 2018.
The consensus price target is $31.13, and with the shares closing at $17.36 on Wednesday, this is another stock with solid upside potential to the price objective.
While nobody can guarantee a “normal winter,” the mere fact that demand is increasing sequentially is a huge positive, and with energy as a whole having a very disappointing year compared with the other S&P sectors, the stocks offer good values at current trading levels.