Mario Gabelli: Buy This Stock For A Double

| About: National Fuel (NFG)

In last week's issue of Barron's, Mario Gabelli offered his insight into specific stock opportunities. In the annual roundtable discussion, Part 1, Gabelli identified 10 stocks with uncommon value. One of his picks is National Fuel Gas (NYSE:NFG). Gabelli's comments are below:

National Fuel Gas has been a disappointment. Shares have not moved much, because the price of natural gas has fallen to $3 per Mcf from $5. There are 83 million shares, and the stock trades for $49. Net debt is $1.5 billion. The company owns large acreage in the Marcellus shale. It also operates the gas utility in Buffalo. The third part of the business is a mid-stream pipeline in the Marcellus area that they can monetize by creating a master limited partnership. There is no reason this company cannot be split up. It pays a nice dividend.

If natural gas were to rise to about $4.50 per Mcf, you would have a $100 stock. At current gas prices, the stock is worth about $85. The MLP could be worth $29 to $25 a share.

Gabelli is a well-known money manager who focuses on stock valuations based on his proprietary Private Market Value, or PMV. Gabelli tends to look past current market noise and hones in on individual market strengths and positioning of specific companies. Gabelli is also known for talking his book and many times will have skin in the game.

This is the case with NFG. The Gabelli Utility Fund (MUTF:GABUX), an income mutual fund focusing on merger potentials in the utility sector, owns 2.5% of outstanding shares of NFG. Gabelli has been increasing his position in NFG as the fund's AUM grows. Currently, NFG represents approximately 5% of AUM.

National Fuel Gas operates a wide spectrum of natural gas assets including a regulated gas utility in Buffalo, N.Y., operates a natural gas exploration and production company focused on California and the Marcellus shale, along with gas pipelines and storage facilities. Two weeks ago, I penned a comprehensive review of National Fuel Gas and its investment attributes. In order to not duplicate this information, and as the major events over the previous 14 days are Gabelli's comments and a press release concerning a series of monster Marcellus gas wells, my most recent commentary can be found in the recent Seeking Alpha article.

From a recent press release concerning the completion of a series of new wells in the Marcellus:

David F. Smith, Chairman and Chief Executive Officer of National Fuel, stated, The success we are achieving in Lycoming County validates the prolific nature of the Marcellus in this area. With three wells reaching peak production rates above 20 MMcf of natural gas per day, and all six reaching a combined 24-hour peak production rate of 107 MMcf of natural gas per day, these wells represent some of the most productive wells ever drilled in the Marcellus by any operator. With two drilling rigs running in Lycoming County, and without the production infrastructure constraints facing many other operators in the Marcellus, we anticipate this acreage will be a key driver of Senecas production growth over the next two to three years.

National Fuel Gas could be a core holding for 1) dividend growth investors with a 2.7% yield and 40-plus years history of dividend growth, 2) utility investors looking for regulated natural gas exposure, 3) natural gas E&P investors seeking added exposure to the Marcellus, and 4) energy master limited partnership investors focused on the potential of a MLP spin-off.

If you are not one of the above investor-types, NFG should be considered as just an excellently managed, hugely undervalued U.S. energy company.

Disclosure: I am long NFG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Please review important disclaimer in the author's profile.