Natural Gas Rallies to Highest Level Since 2014: 4 Picks
An encouraging macro backdrop has accelerated the tailwinds for natural gas equities. In this context, companies like COG, RRC, CRK, and SBOW look par...
Natural gas prices moved past $5 per million British thermal units (MMBtu) in trading on Thursday to finish the day at $5.031. That was the highest settlement since February 2014 and primarily reflected the slow restoration of operations from the Hurricane Ida-led shut-ins in the Gulf of Mexico (GoM). While the contract pulled back slightly from that level in Friday’s session to settle at $4.938 per MMBtu, it still registered the third weekly climb in a row.
The year’s ninth named storm made landfall in Louisiana on Aug 29, resulting in copious rainfall, catastrophic wind damage, and power losses for hundreds of thousands of customers. In particular, the Category 4 hurricane significantly disrupted natural gas production from the GoM. Per the federal Bureau of Safety and Environmental Enforcement, as of Friday, some 75% of Gulf natural gas production (nearly 1.7 billion cubic feet per day) remained offline.
Although the storm did lead to a temporary reduction in demand for the electricity-generating fuel due to power plant outages and relatively cool temperatures, it has been more than offset by the big declines in offshore GoM volumes and the slow restoration of production back online. The platform shutdowns dragged production below 90 Bcf on certain days when an average of around 93 Bcf is needed to balance the demand following a record-breaking summer and continued strength in U.S. liquefied natural gas (“LNG”) exports.
In fact, current natural gas stocks — at 2,923 billion cubic feet (Bcf) — are 592 Bcf (16.8%) below the 2020 level at this time and 235 Bcf (7.4%) lower than the five-year (2016-2020) average. The low stockpile levels have boosted the price of the energy commodity on the apprehension that the market might enter the winter withdrawal season with supplies in storage well below normal.
Besides, investors are focused on the prospects of higher power burn (or cooling demand) through the remainder of this month. The latest models are anticipating summer-like sweltering weather in the second half of September, which will drive the commodity’s consumption. With air conditioners likely to run at full throttle and natural gas being the primary U.S. power plant fuel, the pricing outlook appears bullish.
Shipments of LNG for export from the United States should also remain robust on the back of environmental reasons and higher prices of the super-chilled fuel in Asia and Europe.
Buy These Gas-Heavy Names
Overall, given natural gas’ fundamental set-up, prices are expected to stay strong. The upward trend should aid gas-weighted producers.
To guide investors to the right picks, we highlight four companies that carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy). The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Cabot Oil & Gas Corporation COG: Cabot is an independent gas exploration company, with producing properties mainly in the continental United States. The company, carrying a Zacks Rank #1, owns around 175,000 net acres in the dry gas window of the Marcellus play. Cabot boasts one of the strongest balance sheets among the natural gas-focused E&P group. The company's total assets are almost double that of its total liabilities, reflecting safety regarding debt payments, robust financing power, and the ability to increase stock repurchases. The 2021 Zacks Consensus Estimate for this 100% natural gas producer indicates 218.52% earnings per share growth over 2020. Investors should know that Cabot recently raised its quarterly dividend by 10% for its sixth hike since May 2017.
SilverBow Resources SBOW: SilverBow — also with a Zacks Rank of 1 — has operations across roughly 130,000 net acres in the Eagle Ford and more than 80% of its total output comprises natural gas. SilverBow Resources’ exposure to premium markets and focus on costs and margins should help it to benefit from rising natural gas prices. The company, which focuses on growth through a combination of acquisitions and active drilling, maintains a strong balance sheet with no near-term debt maturities. Over 30 days, SilverBow has seen the Zacks Consensus Estimate for 2021 increase 4.8%
Comstock Resources, Inc. CRK: Comstock is a leading operator in the Haynesville shale — a premier natural gas basin — with 323,000 net acres. About 98% of this Zacks Rank #1 company’s total output is natural gas. A low-cost provider, the company’s leadership position in Haynesville provides it access to the Gulf Coast and an attractive pricing advantage. Comstock’s 1,900+ high-return net drilling locations support its development program, while its conservative operating plan drives free cash flow. The 2021 Zacks Consensus Estimate for this Frisco-TX based producer indicates 378.26% earnings per share growth over 2020.
Range Resources Corporation RRC: It is among the top 10 natural gas producers in the United States and has a strong footing in the prolific Appalachian Basin. In the gas-rich resource, this Zacks Rank #2 upstream firm has huge inventories of low-risk drilling sites that are likely to provide production for several decades. Over the past 30 days, Range Resources has seen the Zacks Consensus Estimate for 2021 increase 6.5%. Natural gas contributed 68.9% to the company’s latest quarterly production.
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