Natural Gas Stocks Finally Receiving the Love they Deserve

Natural Gas has received no love from investors, Washington, etc. Well all that’s about to change thanks to the one and only $325+ Billion enterprise, Exxon

Mobile. With the acquisition of one of the largest U.S. Natural Gas producers, XTO Energy, finally Natural Gas stocks are getting the love they deserve and as a result we have seen the stock prices shoot up 10%+ this week alone. So for those of you who hated on Natural Gas for the longest time, maybe its time your perceptions will change? Lets first look at what you missed out on.

I first recommended Natural Gas on September 25th. I didn’t just push it, I said I love it. In fact here is the exact quote:

“I know last week I advised buying oil stocks. I still love oil especially for the year of 2010 yet forgo those trades at first to jump on Natural Gas as the gains will be significantly better. As a result here are the main Natural Gas stocks you should look at buying. Chesapeake(CHK), Apache (APA), Andarko (APC), Devon Energy (DVN), XTO Energy (XTO), Rage Resources (RRC), and United States Natural Gas Fund (UNG). Trust me this is a play you don’t want to miss. If you don’t believe me, believe other investors by watching this clip.”

My favorite individual Natural Gas stock has been, EOG Resources, which is up 20% since I wrote my initial research report. Back then I said:

“EOG is a Blue Chip stock that everyone should buy. There is no reason to not like this stock as it is well positioned in a strong, growing sector. EOG is right now trading at $78. I would recommend buying it ASAP. My 12-month price target is $105.”

Currently EOG is trading at roughly around $94, give or take. Nice little profits in 3 months. The thing is I have no doubt that these stocks will not continue to rise and this is why:

I see a huge valuation error in Natural Gas, which leads to a bullish opportunity for this commodity. The collapse of our global economy and the unfolding credit crunch sent natural gas prices spiraling downwards to 10-year lows back in September hitting $2.41/MMBtu. Throughout the year Natural Gas prices have been in the doldrums as it has been almost forgotten all together whereas other commodities, most notably Oil have been skyrocketing. The fact is the fundamentals have been screaming BUY, BUY, BUY yet very few people are listening, until now. I see this acquisition creating a buzz around the commodity leading to a new rush to buy up Natural Gas assets. Look at it this way, Exxon Mobile, the largest oil company in the world and steadily one of the most successful companies year in year out invested over $31 billion to buy XTO along with shouldering the $10 billion in debt XTO had. On a money stand point alone; no one would have improved this kind of investment unless they saw strong long-term benefits. Don’t trust Exxon’s judgment? Then maybe I can help.

Natural Gas: Clean, Quality, Cheap, Domestic, & Abundant

Natural Gas is a clean, quality energy that is cheap and domestic. Natural Gas is the second most abundant fossil fuel in America. It’s estimated that we have upwards of 100 years of Natural Gas usage. Plus if you add Canada into the equation who is the largest holder of Natural Gas then combined we are the Mecca of Natural Gas. With this surplus we could develop it into the energy of America and tell the Middle East to screw off for holding us hostage to oil for so many years. Its only now that people are finally catching on that Natural Gas is the cleanest of the renewable resources. As of right now, natural gas is used to heat homes, cook food, power lights, and fuel the revolutionary new Natural Gas powered vehicles. With the winter season coming up, Natural Gas is a huge play as due to the cold winters people crank up the heating. This is even more important as this is expected to be the coldest winter in the past decade. The next great part about Natural Gas is since it is so cheap its getting huge backing from both the consumer and the government. The government is pushing natural gas as the future energy through tax breaks, stipends, etc. The goal is to make it more centered and help push America off oil and onto Natural Gas. With sustained price levels it has become a strong long-term energy play. The demand side of the equation for Natural Gas is starting to look a lot brighter day-by-day. A weak dollar and a recovering U.S. economy should boost demand from the industrial sector. Natural Gas is far more reliable than other options, solar, wind, etc. Washington’s green initiative will push for cleaner fuel options. The government’s green initiative is also positive for the natural gas, as it is a cleaner fuel option. With increased demands there is no reason to not think that natural gas can maintain a price level of $5 with potential upside around $7-$8.

So how to trade the Natural Gas market?

My favorite natural gas stock is still EOG for numerous amounts of reasons.

1.EOG has a return on capital of 26% well above the peer average

2.EOG is expected to have double digit production growth in 2010

3.EOG is the leader in offshore drilling and has several new plans in play

The list can go on and on. Rarely in life do you get second chances in this case you still have the chance to ride the gains of Natural Gas.

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Disclosure: LONG EOG, Natural Gas