The ongoing dilemma for energy investors is the ever increasing supply of oil. Whether it is continued OPEC output, shale producers keeping output up or the possibility of the return to Iranian oil to the markets, there seems like there is more supply than demand to consume it all. In a new report from Jefferies, one analyst says look to the natural gas stocks.

While Jefferies analyst Jon Wolff actually cuts the firm’s natural gas forecasts, he still is looking for a $4 price handle next year. Plus, he prefers natural gas over oil stocks as there is increasing demand and production looks to have peaked in March. Toss in a super-hot summer and another frigid winter into the mix, and the prospects could be even better.

Three top natural gas focused stocks are the favorites and all are rated Buy at Jefferies.

EQT

This company is expected to have a stunning 99% of its production come in as natural gas. EQT Corp.’s (NYSE: EQT) superior cost structure and above-average growth may help it 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.

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EQT investors are paid a small 0.2% dividend. The Jefferies price target for the stock is set at $101. The Thomson/First call consensus target is higher at $104.71. The stock closed Friday at $76.55 per share.
Range Resources

The Jefferies team likes this defensive natural gas stock now. 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.

Some Wall Street reports suggest 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.

Range Resources investors are paid a small 0.4% dividend. The Jefferies target price is $65, and the consensus target is at $68.83. The stock closed Friday way below those levels at $45.27. Shares have been walloped to the tune of almost 50% over the past year.

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Southwestern Energy

This company surprised analysts when it actually increased its capital expenditure budget for 2015. Southwestern Energy Co. (NYSE: SWN) explores, develops and produces natural gas and oil in the United States. The company operates in two segments: Exploration, Development and Production, and Midstream Services.

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

The company 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 Jefferies price objective for the stock is $28, and the consensus target is $29. The stock closed Friday at $20.92 per share.

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The energy game is getting harder and harder, and with oil prices slipping, looking at the top natural gas producers may be a better growth play over the next year or so.

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