Economically sensitive sectors like energy failed to generate investor enthusiasm in 2011. Fears of a mammoth depression in Europe as well as a slowdown in China hampered share prices of mainstays from Anadarko Petroleum (APC) to Southwestern Energy (SWN).
Looking forward, however, there may be reasons to cheer. China has shifted from restrictive fiscal and monetary policies to more accommodating ones. U.S. economic data continues to show modest improvement. And European leaders will - one way or another - find themselves taking monumental steps to stabilize the region’s financial system.
These things alone should be enough to boost the prices of undervalued energy corporations. Yet now, there may be a reason to overweight companies that derive a substantial portion of revenues from the exploration, production and exporting of natural gas.
In the coming weeks, U.S. officials are set to determine the extent to which U.S. energy firms can export the commodity. Suppliers like Conoco-Phillips (COP) are chomping at the bit to profit from markets like Asia, where natural gas prices are 3-4x the price here in the U.S. Can you say “profit motive?"
On the flip side, government regulators worry that natural gas prices might rise precipitously if U.S. energy companies ship away an abundant domestic supply. Of course, most studies (and outcomes) demonstrate that the free market does a better job determining fair market value than intrusive regulatory bodies.
Assuming U.S.-based energy firms get the green light to export natural gas, one could expect an enormous boost in corporate profits. And, by extension, when earnings matter to the stock market again, one might want to invest in natural gas producers.
Rather than attempt to pick the ”nat gas” winner, keep an eye on First Trust ISE Revere Natural Gas (FCG). This fund tracks an equal-weighted index of attractively-priced, exchange-listed natural gas producers, including ConocoPhillips (COP), Exxon Mobil (XOM) and Cabot Oil and Gas (COG).
The fundamental picture for First Trust ISE Revere Natural Gas, like many equity funds, is exceptional. Whether one is looking at price-to-sales (P/S) of 1.6 or P/E of 12.5, it’s clear that FCG is attractively priced.
On the other hand, this exchange-traded stock fund has yet to break through technical resistance levels. At the very least, one would want to see FCG rise above a 50-day moving average. For longer-term confirmation of a bull market uptrend, the current price of FCG would need to eclipse its 200-day trendline.
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Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.