Buffer high utility bills with these energy plays
Last year when the novel coronavirus pandemic became a harsh reality within our borders, most everyone had a fundamental concern: avoiding COVID-19 and thereby becoming a statistic. But as the weeks of lockdowns and mitigation measures turned into months, people had other thoughts about returning back to normal. Now that we’re on its cusp, demand has boomed, particularly for natural gas stocks.
Indeed, one of the reasons why prices for this energy commodity have jumped this year is due to the resurgence of global economic activities. Back during the worst of the crisis, the personal saving rate jumped to nearly 34%. Basically, this means that for every $100 of disposable income earned, Americans saved on average $34. Now that this metric has dropped to somewhat normal, the implications are cynically positive for natural gas stocks.
For one thing, consumers have more money to spend on both discretionary items and necessary services. After a year or more of going without, they’re ready and capable of spending for greater creature comforts. Secondly, this dynamic is not just a U.S.-based phenomenon. As the Columbus Dispatch reported, with the rest of the world making its way out of the pandemic, energy prices skyrocketed, boding well for natural gas stocks everywhere.
Of course, with the incoming winter season, several American households must contend with a substantial dip in temperatures. As a CNN Business report noted, natural gas prices haven’t been this high since February 2014. And should we encounter an earlier start to the cold temps — a very possible event given climate change — that could be devastating. Still, it’s one more reason to consider natural gas stocks to buy.
Also, CNN brought up the issue that rising prices could be a self-fulfilling prophesy. If either an early winter or colder-than-usual season occurs, impacted households will crank up the heat. That will deplete supplies, leading to even higher prices. So, to hedge that risk, you may want to look at these natural gas stocks.
- Cheniere Energy (NYSEAMERICAN:LNG)
- Devon Energy (NYSE:DVN)
- EQT Corporation (NYSE:EQT)
- Antero Resources (NYSE:AR)
- Tellurian (NASDAQ:TELL)
- Ranger Oil Corp (NASDAQ:ROCC)
- Gazprom (OTCMKTS:OGZPY)
With so much craziness going on with the Covid-19 pandemic, it’s not a wise move to put all your eggs into one basket. For natural gas stocks, there’s also a real possibility that this catalyst could be a short-lived one. Therefore, exercise smart money management and keep tabs on the news.
Cheniere Energy (LNG)
With the enviable ticker symbol LNG, Cheniere Energy certainly ranks among the most marketable natural gas stocks. Billed as a full-service global provider of clean, secure and affordable liquefied natural gas (LNG), the underlying company plays a massive role in our national energy security discourse.
Per its website, Cheniere Energy — which began operations in 2016 — is “already the largest producer of LNG in the United States and the second largest LNG operator in the world.” Moreover, Cheniere reaches several markets across five continents, with demand growing as international economies expand. Of course, the circumstances surrounding the Covid-19 pandemic have only bolstered purchases of natural gas.
According to Hydrocarbon Processing, in 2009, the U.S. Energy Information Administration reported that natural gas accounted for 76% of residential and commercial sectors’ energy needs. As well, it accounted for 40% of the industrial sector’s energy consumption levels, demonstrating the continued viability of this commodity despite the introduction of renewable energy sources.
Further, because Cheniere Energy is simply natural gas converted into liquid (and thereby condensed) form, Cheniere plays well into both domestic and international revenue channels. It’s one of the best-regarded natural gas stocks and valuations are only rising.
Devon Energy (DVN)
A leading independent oil and natural gas exploration and production company, Devon Energy focuses its operations on onshore domestic projects. According to its fourth quarter of 2020 earnings report, Devon’s “daily production was approximately 300,000 barrels of oil, more than 125,000 barrels of natural gas liquids and about 920 million cubic feet of natural gas.”
Back during the initial onslaught of the Covid-19 pandemic, though, circumstances looked dire. At one point, DVN stock was trading hands at around $6 a pop. In early January of 2020, shares were priced at approximately $26. However, buying in the single digits proved to be an exceptional once-in-a-blue-moon opportunity for speculators. At time of writing, the equity unit will cost you over $40.
What’s more, in the trailing month since the mid-October session, DVN gained over 32%, keeping pace with other high-flying natural gas stocks. In the first half of this year, Devon generated revenue of nearly $4.2 billion, which is nearly 87% of all of 2020’s revenue. Currently, the company’s on pace to reach near 2018’s sales haul of $8.9 billion.
EQT Corporation (EQT)
Don’t let its third-place ranking on this list of natural gas stocks fool you. When it comes to discussing anything related to the underlying energy sector, EQT Corporation often is the go-to company to assess. As the largest natural gas producer in the U.S., EQT has certainly earned bragging rights. I just wanted to be a little bit less predictable.
Anyways, the company features a world-class base in the Appalachian Basin, an area that provides abundant reserves. Per the EIA, shale natural gas production in the region set a record in the first half of 2021. Furthermore, the “Appalachian Basin contains two shale formations, Marcellus and Utica, which accounted for 34% of all U.S. dry natural gas production in the first half of 2021.”
An interesting side note is that on its own, the basin “would have been the third-largest natural gas producer in the world the first half of 2021, behind Russia and the rest of the United States.” Therefore, any company that commands a strong presence in the area will invariably be among the top natural gas stocks to buy.
Antero Resources (AR)
Optically, it’s quite possible that Antero Resources pulled off the most remarkable recovery among major natural gas stocks. At the beginning of January 2020, AR shares were already treading troubled waters following a devastating period that started in October 2018 and carried through into 2020. Then the pandemic struck, dropping AR stock into unfathomable lows.
In fact, shares were trading under a buck during the worst of the March 2020 doldrums. But from there, an optimistic outlook of Covid-19 being a temporary problem bolstered Antero. Now, the prospects of a longer-than-expected global supply chain disruption combined with concerns about a brutal winter season has AR looking like a winner again.
As with EQT above, Antero runs its hydrofracking operations in the Appalachian Basin. This area could continue delivering the goods because according to the EIA, growth in pipeline takeaway capacity allowed the energy resource to reach other demand markets during the first half of this year, particularly the Midwest.
Better yet, the tailwinds are translating into significant growth for Antero. In Q1 and Q2 of this year, the company posted revenue of $2.35 billion, representing 76% of full-year 2020 sales.
Although natural gas stocks are on fire right now due to the underlying heightened demand narrative, several of these names are priced into the stratosphere. While that’s not really an excuse to avoid certain investments — especially in this era of fractional share ownership — there is admittedly a psychological element involved in buying several shares as opposed to one or two. If you fall into this camp, then Tellurian is worth considering.
Leveraging a first-class management team with expert knowledge in the LNG transportation sector, Tellurian aims to secure low-cost natural gas and implement budget-friendly liquefaction. Through this, the company seeks to deliver reliable and flexible LNG to multiple international customers. Unlike speculative opportunities in the segment, Tellurian boasts collectively delivering 79 million tons of LNG through 50 years of past industry experience.
Before you get too excited about TELL stock, you should read the Wall Street Journal’s take on the company, which describes it as embracing the meme-stock phenomenon. As you know from prior memes, that could be a lucrative move, although you must be cognizant of volatility risks.
Ranger Oil Corp (ROCC)
One of the lesser-known opportunities among natural gas stocks, the company once known as Penn Virginia aims to change that storyline with a rebranding to Ranger Oil Corp. In some ways, a rebranding could be considered a spiritual initial public offering, creating a positive impact similar to what an uplisting from the over-the-counter market can deliver.
Especially in this present market environment, a higher premium exists for visibility. Frankly, Penn Virginia didn’t really convey an opportunity among natural gas stocks. At first glance, you might think it sells cigarettes. More importantly, the impact of a rebranding isn’t just limited to subjective optics. As I wrote for Benzinga:
“According to a compelling research study by Dr. Yanhui Zhao of the University of Nebraska Omaha, his team’s data suggests that ‘on average, rebranding events are associated with positive stock returns. We observed an average increase of 2.46% in stock prices, which is equivalent to an average gain of $31 million in market value of the sample firms.’”
Obviously, the basis for ROCC stock is its hydrocarbon operations, which are located in the Eagle Ford shale in south Texas. However, a transparent brand identity doesn’t hurt.
With my last name for natural gas stocks, I’m going to simultaneously go international and controversial with Russia’s Gazprom. As the largest supplier of natural gas to Europe and Turkey, Gazprom offers an incredibly enticing fundamental catalyst. According to the WSJ, the European benchmark for the energy resource jumped more than 30% to a fresh record at the end of September.
Pejoratively, the late former Senator John McCain once remarked that Russia is a “gas station masquerading as a country.” Obviously, the Russians probably had some choice words — it’s a colorful language — for the senator and combat military veteran but the takeaway is that the country has a glut of hydrocarbon resources.
The problem with anything Russia related is geopolitics. True, Gazprom has printed some positive headlines, including a 15-year contract to supply natural gas to Hungary. But we’re talking about Hungary, which has a projected 2021 GDP of $194 billion, meaning that it’s just outside the top 50 economic powers of the world.
But should climate change cause a severe winter season, OGZPY stock will likely benefit. At the same time, climate change could make the winter warmer in Europe, which would hurt Gazprom. Therefore, let the buyer beware.
This article 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.