Perhaps you are unfamiliar with an English Friar known at the time as William of Ockham. No doubt, you are familiar with what he is know for, “the simplest solution is almost always the best.” The philosophical theory known as Occam’s Razor.
The friar’s philosophy applies to this week’s insider buy with a purpose. National Fuel Gas Company (NFG) Chief Executive Officer (CEO) David Bauer purchased 3,000 shares at $51.36 for a total investment of $154,080. (1)
National Fuel Gas Company operates as a diversified energy company. Its Exploration and Production segment explores for, develops, and produces natural gas and oil in California and in the Appalachian region of the United States. As of September 30, 2020, it had proved, developed, and undeveloped reserves of 22,100 barrels of oil and 3,325,085 million cubic feet of natural gas.
In our opinion, it doesn’t require a lot of guesswork or speculation for Bauer’s motivation. The simple answer is soaring natural gas prices. According to Bloomberg, “The deepening global energy crunch has pushed natural gas in Europe and Asia to the equivalent of about $190 a barrel, something the oil market has never seen.” (2)
The Associated Press reports, “the price of natural gas in the United States has more than doubled since this time last year. In Europe and Asia, wholesale prices are more than five times what they were a year ago.” (3)
You can see natural gas’ price explosion yourself on this chart.
You can see on this chart how closely correlated NFG’s stock price has been with natural gas for the last decade (NFG is blue, natural gas black).
National Fuel Gas Company’s price has risen, but as you can see on the chart above, its price has been relatively stable as natural gas’ price goes vertical. Interestingly, Bauer has one other insider transaction in the last decade. He sold more than $700k of NFG right after natural gas hit its 10-year high in early 2014. (1)
He sold then; he is buying now as natural gas approaches its 10-year high. It’s speculation on our part, based on his 2014 sell and natural gas’ subsequent fall, it’s our opinion the Chief Executive feels natural gas’ price is going higher. Otherwise, he might sell like he did the last time natural gas peaked.
National Fuel Gas Company’s stock price is on the verge of breaking important resistance at $55. If it can pop past the speed limit, then it could challenge its 10-year high at $62.50ish. There is no telling where NFG’s price goes if bulls and natural gas prices take share past $63 as it hasn’t traded higher for at least 30 years (as far back as we can take the chart below).
Outlook: It’s hard to imagine National Fuel Gas Company (NFG) shares not following along if natural gas’ price continues to march higher as NFG and natural gas have highly correlated for the last decade. It appears Chief Executive Officer (CEO) David Bauer has made his bet on the continued direction of the commodity’s price.
National Fuel Gas Company (NFG) could be appropriate for investors with an average risk tolerance looking for a hedge against rising natural gas costs. NFG’s five-year beta of 0.74 suggests it could be less volatile than the overall market and the company currently pays a 3.36% annual dividend while you wait. (4)
1 – https://www.secform4.com/insider-trading/1495829.htm
2 – https://www.bloomberg.com/news/articles/2021-10-01/the-surge-in-gas-prices-is-the-equivalent-to-a-190-oil-shock
3 – https://apnews.com/article/business-europe-asia-united-states-prices-cc94e4f9bfc479a84639abea2f9de771
4 – https://finance.yahoo.com/quote/NFG?p=NFG