In the middle of a scorching hot summer, it may seem hard to find a reason to buy natural gas stocks. The fact of the matter is natural gas is starting to be a go-to fuel here and abroad on a year-round basis. A new report from Cowen says that in the next two years the U.S. natural gas market could turn from a domestic to an international market.

The Cowen team feels that prices are set to rise to $3.50 per thousand cubic feet by 2018 from the current lower and depressed levels. While they caution that sustained demand above that price level would require weather-related demand, like more bone-chilling winters, the bounce from here could be substantial. The Cowen team is focused on four preferred stocks to buy that are rated Outperform and may be poised to be the leaders when demand and pricing heads higher.

EQT

This company is expected to have a stunning 99% of their 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. That is something that is very shareholder friendly. Plus, the company is a low-cost producer with a very strategic midstream presence. EQT’s superior cost structure and above-average growth may help to ease concerns some investors have about current struggling natural gas prices.

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The Cowen team notes that the company’s midstream holdings are among the best in the industry. EQT completed the initial public offering of the general partner back in May, and it carries an $8.3 billion valuation. With a $1.75 billion stake in Equity Midstream Partners, the company has a combined $10 billion in midstream holdings.

EQT investors are paid a small 0.16% dividend. Cowen initiates coverage with a price target for the stock set at $98. The Thomson/First Call consensus price target is higher at $104.24. The stock closed Tuesday at $73.50.
Rice Energy

This company 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 properties in the Appalachian Basin. The company operates through two segments: Exploration and Production, and Midstream. As of December 31, 2014, the company 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.

While the first-quarter numbers missed estimates, they were up a solid 21% as Rice Energy posted revenues of $109.53 million, versus $90.47 million reported in the same quarter last year. With the stock down over 20% since May, investors have a solid opportunity to scale in some shares.

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The Cowen team thinks the company is solid takeover candidate and see the potential for 20% or more growth over the next few years. The analysts also cite the fact that the midstream asset portfolio provides balance sheet flexibility, but they do think that a capital outspend will be required through 2017 to achieve the 20% growth rate.

Cowen initiates coverage with a $26 price target. The consensus target is even higher at $27.84. Shares closed Tuesday at $19.16.

Range Resources

This company is a defensive natural gas stock that the Cowen team likes 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, and shares have been walloped to the tune of almost 50% over the past year. The Cowen target is $73, and the consensus objective is $68.83. The stock closed Tuesday way below those levels at $41.19.

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Southwestern Energy

This company surprised analysts when it actually raised its capital expenditure budget for 2015, and the Cowen analysts think there is 33% upside to the stock if it just moves 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. 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 there by acquiring interest from other stakeholders. Southwestern’s gas production increased to 766 billion cubic feet (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. While the Cowen team cites the firm’s leverage as an issue, they feel it clouds the importance of the southern Appalachia purchase, and while the company can grow at current spot levels, the real growth will kick in at $3.50 thousand cubic feet pricing.

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 Cowen team initiates the stock with a $27 price objective. The consensus target is at $29.48. The stock closed Tuesday at $20.43.

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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 two years or so.

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