6 Natural Investments in Natural Gas

Seasonal and cyclical timing favors current purchase of Buy-recommended, large cap natural gas producers Devon Energy (DVN), Encana (ECA) and XTO Energy (XTO). The long-term natural gas prospects are also attractive for Hold-rated Anadarko Petroleum (APC) and EOG Resources (EOG) as well as for unrated Chesapeake Energy (CHK) rounding out a six stock peer group.

Seasonally, stocks do better after October and energy investors can dream about a cold winter. Cyclically, stocks have not been lower compared to recent highs than at practically any time in the past 50 years. Yet, we restrain the number of buy recommendations while stock prices remain below 200-day averages. Through the latest quarter the natural gas peers have registered double digit annual volume growth. The trends are more similar on a per share basis while debt-adjustment introduces its own volatility.

At McDep Ratios of 0.64 to 0.79, the stocks are valued at natural gas prices well below $10 a million btu that a McDep Ratio of 1.0 would signify. Six-year futures, after touching a low of $7.47 a million btu in our weekly tabulation on the last Monday in October, are currently at $7.83. A discount to the oil-equivalent price of nearly $13 a million btu tells a good news tale of abundant supply of clean fuel on the North American continent. We like low McDep Ratio stocks concentrated on natural gas.

Originally published on November 18, 2008.

Comments

[mc2406:]

I would think that beaten down U.S. royalty trusts such as San Juan and Hugoton should also be considered as favorable for current purchase in this environment.

2008 Dec 12 03:33 PM

[deee:]

wouldn't do anything till the full scope of the Madoff scandal comes to light.

2008 Dec 13 09:03 AM

[long_on_oil:]

The ratio of oil to natural gas energy wise is 6:1 so eventually both will settle on prices that reflect the ratio. So $7 nat gas equates to $42 oil etc. If you are investing in natural gas that is a very important ratio to remember.
Natural gas is now $5.88 that translates to $35 oil or if natural gas comes back to the current price of oil it would be at $7.60. The two have been drifting towards the ratio for the past 3 months.

2008 Dec 13 10:31 AM

[macsmart:]

Kurt Wulff has been recommending Hugoton Royalty Trust (HGT) for some time now.

2008 Dec 13 10:57 AM

[secmaven:]

Now that the Picken's plan is dead the excess supply of natural gas in a recessionary economy is going to drive the price of these stocks down further.

2008 Dec 13 11:29 AM

[Ames Tiedeman:]

CHK must be the most volatile NG stock ever. In 25 trading days it goes up 60% down 45% and then up almost 100%..

2008 Dec 13 12:03 PM

[imagasser:]

You may want to rethink CHK. I am a physician in Oklahoma and one of the surgeons I work with tried to cash a CHK dividend check on Dec 11, 2008 and his bank would not cash it because there were insufficient funds in the CHK bank.
Tulsa, OK

2008 Dec 13 01:19 PM

[Alamo:]

The comment by Imagasser above is worrisome as well as enlightening.and begs the question why a CHK dividend check was AT ANY TIME INSUFFICIENT?

At best it reflects very poorly on CHK's business practices assuming it was due to simply a clerical ommission. At worst, it suggests a very serious state of financial affairs. I am long CHK and would "like" to think the company is solvent. What IS the explanation Mr McClendon?

2008 Dec 13 02:45 PM

[Bill M:]

HTE (Harvest Energy Trust) owns alot of gas fields also.

2008 Dec 13 02:50 PM

[January Thaw:]

You might want to take a look a HK...some amazing discoveries lately
and low cost recovery too...what's not to like?

2008 Dec 13 05:53 PM

[bush wacked:]

How about the natural gas pipelines, even though their delivery cost is fixed, the more they deliver, the more they make. Most have large storage compounds, fill in Summer and sell in Winter.

2008 Dec 14 05:43 AM

[smurphny:]

I would add WTU and DOM, smaller gas trusts, as high payout ideas. DOM has been relatively stable and WTU still has a three years left with a long record of stable payouts and then the possibility of a substantial final payout once the remaining assets are auctioned off. Both are low volume but seem to have some staunch holders and a low turnover rate.

2008 Dec 14 02:26 PM

[smurphny:]

Yes, if anything, NG is closer to its long term average than oil if you eliminate the irrational '07 spike. I can see oil going down to or lower than $35 because of the apparent accumulation of supplies on tankers that has been hinted at. We may well discover that, as after the '70s spike, the world is awash in oil.


On Dec 13 10:31 AM long_on_oil wrote:

> The ratio of oil to natural gas energy wise is 6:1 so eventually
> both will settle on prices that reflect the ratio. So $7 nat gas
> equates to $42 oil etc. If you are investing in natural gas that
> is a very important ratio to remember.
> Natural gas is now $5.88 that translates to $35 oil or if natural
> gas comes back to the current price of oil it would be at $7.60.
> The two have been drifting towards the ratio for the past 3 months.

2008 Dec 14 02:33 PM

[freshone:]

if it were true about a bounced divedend check then i'm sure one than one person would have said something...also the check bounced or was not accepted byt he bank?

is it possible that your buddy was just being sarcastic?

2008 Dec 16 03:41 PM