Energy

Credit Suisse Says There Will Be a Winter: 4 Natural Gas Stocks to Buy Now

Lee Jackson

Published: November 2, 2015 11:10 am

Last Updated: January 13, 2020 5:40 pm

By the chatter and constant talk on Wall Street about the upcoming possibility for an El Niño winter, or one where the weather pattern is warmer than usual, some investors may think that the Midwest and Northeast will be like Florida. In a new research report, not only does Credit Suisse play down the potential for a balmy winter, the firm thinks there could be a big opportunity.

In the report reminds investors that of the five El Niño weather events in the past 18 years, only one was warmer than normal. While forecasters are saying that a warmer start to November is likely, the El Niño is likely to produce greater cold in the northeast when and where it matters the most, January and February.

The bottom line is that at current spot pricing with some spot futures for natural gas pushed below $2 per MMBtu last week, the analysts think there is upside to this winter’s natural gas market. While they do acknowledge their own forecast of $4 per MMBtu is probably high, there could be money to be made between here and there.

We screened our own 24/7 Wall St. database for energy stocks levered to natural gas and found four that make sense to consider.

EQT

EQT Corp. (NYSE: EQT) is expected to have a stunning 99% of its production come in as natural gas. Its superior cost structure and above-average growth may help its exploit stable and rising natural gas prices. With an increasing reserve structure and a projected higher number of Marcellus wells to be drilled in the coming five years, the company exhibits industry-leading organic growth momentum.

With more than 125 years of experience, EQT continues to be a leader in the use of advanced horizontal drilling technology. This technology is designed to minimize the potential impact of drilling-related activities and reduce the overall environmental footprint, something that is very shareholder friendly. Plus, the company is a low-cost producer with a very strategic midstream presence.

ALSO READ: 4 Top Jefferies Growth Stocks to Buy Right Now

EQT’s midstream holdings are considered among the best in the industry. It completed the IPO of the general partner back in May and it carries an $8.3 billion valuation. With a $1.75 billion stake in Equity Midstream Partner, the company has a combined $10 billion in midstream holdings.

EQT investors are paid a small 0.2% dividend. The Thomson/First call consensus price target for the stock is $93.22. The stock closed Friday at $66.07.
Rice Energy

This one has started to catch some upgrades recently around Wall Street. Rice Energy Inc. (NASDAQ: RICE) is an independent natural gas and oil company engaged in the acquisition, exploration and development of natural gas, oil and natural gas liquid (NGL) properties in the Appalachian Basin. As of December 31, 2014, it held approximately 86,000 net acres in the southwestern core of the Marcellus Shale, Pa., and approximately 55,000 net acres in the southeastern core of the Utica Shale located in Belmont County, Ohio.

Some on Wall Street see the company as a solid takeover candidate and the potential for 20% or more growth over the next few years. Analysts have also cited that the midstream asset portfolio provides balance sheet flexibility, but they do think that a capital outspend will be required through 2017 to achieve 20% growth.

The consensus is price objective is set at $25.05. Rice Energy shares closed Friday at $15.26.

Range Resources

Investors could consider this defensive natural gas stock. Range Resources Corp. (NYSE: RRC) holds interests in developed and undeveloped natural gas and oil leases in the Appalachian and Southwestern regions of the United States. The company owns 7,582 net producing wells and approximately 1.4 million net acres under lease in the Appalachian region, as well as 653 net producing wells and approximately 383,000 net acres under lease in the Midcontinent region.

ALSO READ: 5 Big Oil, Gas and Energy Stocks Analysts Want You to Buy Now

Some Wall Street reports suggest that that the company will be sending more gas to the Midwest and Ontario as it likes the large in-place pipeline system, significant storage and additional coal to gas displacement opportunities. The company continues to pursue an organic growth strategy targeting high-return, low-cost projects within its large inventory of low-risk, development drilling opportunities.

Shares have been walloped to the tune of almost 50% since May. Range Resources investors are paid a small 0.5% dividend. The consensus target is $52.11. The stock closed Friday way below that level at $30.44.

Southwestern Energy

Analysts surprised when this company actually raised its capital expenditure budget for 2015, and there could be some serious upside to the stock if it traded to the multiple the peer group trades at. Southwestern Energy Co. (NYSE: SWN) explores, develops and produces natural gas and oil in the United States.

Southwestern has invested heavily in the Marcellus play, where it holds leases in approximately 337,300 net acres. Reports indicate that it has increased its acreage in the Marcellus Shale in Pennsylvania by acquiring interest from other stakeholders. Southwestern’s gas production increased to 766 Bcf in 2014 from 656 Bcf in 2013. This will provide the company exposure to a play with a low-cost structure and additional acreage.

It also is involved in the gathering, marketing and transporting natural gas and oil and natural gas liquids. As of December 31, 2014, Southwestern had pipelines of 2,017 miles in Arkansas, 105 miles in Pennsylvania, 25 miles in Texas and 16 miles in Louisiana in its gathering systems.

The consensus price objective is posted at $21.05. The shares closed Friday at $11.04.

ALSO READ: 3 Tech Stocks to Own for a Possible End of the Year Rally

While the natural gas trade is somewhat contrarian, Wall Street may have gone overboard on lower spot pricing, and to be sure hedge funds are short the contracts. Any colder weather, the spot price and the top stocks could jump considerably higher.