Shifting paradigms bolster these energy plays
- Geopolitical flashpoints and high prices put a spotlight on the best natural gas stocks to buy.
- Black Stone Minerals (BSM): It’s a hot name with a hot dividend.
- Matador Resources (MTDR): Its exploration business is firing on all cylinders.
- Pioneer Natural Resources (PXD): It offers great metrics, but you pay for it.
- Texas Pacific Land (TPL): While shares trade at a premium, the company has zero debt.
- Canadian Natural Resources (CNQ): It’s an all-around solid wager.
- Woodside Energy (WDS): It has a quality business that’s arguably undervalued.
- Diamondback Energy (FANG): It offers strong growth and profits.
With geopolitical dynamics sparking a radical paradigm shift in the hydrocarbon energy space, it’s time to consider the best natural gas stocks to buy now. Fundamentally, one of the main catalysts – if not the catalyst – for higher energy prices centers on Russia’s invasion of Ukraine. It’s not just about the military action itself, but rather Moscow’s decision to cut hydrocarbon outflows to Europe.
As a result, Europe’s allies must step up to the plate, providing supplies to meet the region’s needs. Of course, such measures reduce global supplies, thus raising demand. About the only beneficiaries of this circumstance are – you guessed it – stakeholders of the best natural gas stocks to buy.
Additionally, monetary dynamics such as skyrocketing inflation have also boosted energy prices. While the Federal Reserve attempts to control inflation through interest rate hikes, demand may outstrip such measures. This will be especially true if the U.S. and Europe face a cold winter.
To filter out the best natural gas stocks to buy from the merely good, I used GuruFocus to help identify low-risk enterprises. Below are market ideas you should put on your radar.
|BSM||Black Stone Minerals||$18.45|
|PXD||Pioneer Natural Resources||$254.14|
|TPL||Texas Pacific Land||$2,603.23|
|CNQ||Canadian Natural Resources||$60.16|
Best Natural Gas Stocks: Black Stone Minerals (BSM)
Based in Houston, Black Stone Minerals (NYSE:BSM) focuses on acquiring diverse mineral and royalty assets. So far, the unique dynamics of the post-pandemic new normal benefitted Black Stone handsomely. Since the start of the year, BSM gained more than 78%. Currently, the company features a market capitalization of $3.9 billion.
One of Black Stone’s attractive attributes is its dividend. While the hydrocarbon space carries a reputation for generous passive income opportunities, BSM stands out. Its forward yield of 9.8% is well above the energy sector’s average yield of 4.2%. However, sustainability questions will cloud this dividend, as the payout ratio of 83.7% is on the high side.
Nevertheless, Black Stone represents one of the best natural gas stocks to buy because of its robust balance sheet and strong growth metrics. Specifically, its net margin of nearly 70% ranks above almost 95% of the industry.
I expect the tremendous momentum that quality hydrocarbon companies have enjoyed to continue, meaning BSM stock should continue to outperform.
Matador Resources (MTDR)
Based in Dallas, Matador Resources (NYSE:MTDR) plies its trade in the exploration side of the hydrocarbon space. Since the start of this year, MTDR gained a staggering 80%. However, shares sit nearly 10% below their 52-week high, made on Nov. 7, perhaps signaling a buying opportunity. At the time of this writing, Matador had a market cap of $7.9 billion.
About a month ago, MTDR was considered “modestly overvalued” based on GuruFocus’ proprietary calculations. Today, Matador rates as “fairly valued.” Currently, MTDR trades at 6.4 times forward earnings, which is slightly below the sector median’s forward price-earnings ratio of 6.9.
Now, onto the main reasons why MTDR ranks among the best natural gas stocks to buy. On the top line, Matador features a three-year revenue growth rate of 20.8%, beating out 87% of its peers. On the bottom line, Matador has a net margin of 40.3%, well above the industry median of 4.4%. As well, the company’s Altman Z-Score of 4 reflects low bankruptcy risk.
Best Natural Gas Stocks: Pioneer Natural Resources (PXD)
Headquartered in Irving, Texas, Pioneer Natural Resources (NYSE:PXD) specializes in hydrocarbon exploration. Year to date, PXD has gained 40%, bringing its market cap to $60.4 billion. However, shares sit 12% below their 52-week high, made on May 31, potentially offering an opportunity for those that missed the boat earlier this year.
Let’s get the bad news out of the way first. According to GuruFocus’ proprietary calculations, Matador rates as “modestly overvalued.” PXD trades at a premium based on traditional metrics such as P/E ratios, although they’re not too far above the industry medians. However, it Shiller P/E ratio of 57 times is well above the industry median of less than 17. Still, it’s a hot sector, so it’s not entirely unexpected.
And investors get plenty for their money. First, Pioneer enjoys a stout and stable balance sheet with low bankruptcy probability based on its Altman Z-Score of 4.6. Second, its three-year revenue growth rate of 9.8% beats out 75% of the competition. Finally, Pioneer’s net margin of nearly 29% ranks better than 81% of its peers.
Texas Pacific Land (TPL)
Representing a publicly traded real estate operating company, Texas Pacific Land (NYSE:TPL) owns about 880,000 acres in West Texas. It happens to be one of the largest private landowners in Texas, focusing on various hydrocarbon projects. Since the start of this year, TPL has gained a staggering 108%, bringing its market cap to $20.5 billion. Over the past month alone, shares are up 21%.
To be upfront, Gurufocus labels shares “significantly overvalued,” warning investors they’ll pay a premium for this growth trajectory. TPL currently trades at over 45 times forward earnings compared with an industry median of 6.9. Nevertheless, Texas Pacific stands among the best natural gas stocks to buy for its excellent financial strength.
Take its balance sheet for example. With zero debt and an astronomical Altman Z-Score of 116.9, Texas Pacific is about as clear of bankruptcy risk as you can get. Further, the company features excellent growth metrics, including a three-year revenue growth rate of 14.7%, better than 82% of its peers.
Finally, Texas Pacific has a return on equity of almost 64%. With an industry median of only 9.2%, Texas Pacific enjoys a very high-quality business.
Best Natural Gas Stocks: Canadian Natural Resources (CNQ)
If you’re looking for a broadly balanced opportunity among the best natural gas stocks to buy, you should consider Canadian Natural Resources (NYSE:CNQ). A senior oil and natural gas firm, CNQ shares have gained over 45% since the beginning of the year. Presently, the company features a market cap of $66.8 billion.
Notably, Canadian Natural Resources provides a forward yield of 4.4%, which is in line with the sector average. Its payout ratio sits at just under 34%, making it an attractive dividend play for conservative investors.
Per GuruFocus, CNQ is “fairly valued,” featuring middling rankings for earnings multiples. However, the company enjoys a decently stable balance sheet. Additionally, it ranks strongly for growth and profitability. Finally, CNQ is a high-quality business with a return on equity of 31.7%, outscoring 78% of its rivals.
Overall, CNQ is one of the best natural gas stocks you’ll find.
Woodside Energy (WDS)
Based in Australia, Woodside Energy (NYSE:WDS) is an oil and gas production firm. Since the start of 2022, WDS shares have shot up over 61%. This includes an 11.5% pop over the trailing month. At the moment, the company features a market cap of $48.8 billion.
Per GuruFocus’ proprietary calculations, Woodside’s business is “significantly undervalued.” Against traditional metrics, it doesn’t seem particularly undervalued, though its enterprise value (EV)-to-forward EBITDA is 2.9, whereas the industry median is 4.3.
Notably, the company enjoys a stout balance sheet with a strong cash-to-debt ratio of 3.2 versus the sector median of 0.5. And its three-year revenue growth rate of 8.3% ranks better than nearly 72% of its peers.
On the profitability side, WDS has a net margin of 31.7%, better than nearly 72% of the industry. Finally, its return on equity of 17% reflects a quality business.
Best Natural Gas Stocks: Diamondback Energy (FANG)
A hydrocarbon specialist headquartered in Midland, Texas, Diamondback Energy (NASDAQ:FANG) focuses on exploration. It’s involved in petroleum, natural gas and natural gas liquids, or NGLs. Since the beginning of the year, FANG gained a healthy 38% of equity value. In the trailing month, shares did lose close to 4%, which might attract discount seekers. Presently, the company has a market cap of $26.3 billion.
According to GuruFocus, FANG is a “modestly undervalued” investment. At the time of writing, its P/E ratio is 6.1. This rates favorably below the industry median of 8.7. However, the company really attracts attention as one of the best natural gas stocks to buy for its strong growth and profitability metrics.
Currently, its three-year revenue growth rate is 22.7%, beating out almost 88% of its rivals. Further, its three-year EBITDA growth rate stands at 12.5%, better than 62% of the industry. On the bottom line, Diamondback’s net margin stands at a whopping 45.5%, superior to 90% of its peers.
This post originally appeared at InvestorPlace.
On the date of publication, Josh Enomoto 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.