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3 Stocks to Buy as Natural Gas Rallies to Highest Since 2008
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Natural gas prices moved past $6 per million British thermal units (MMBtu) in trading last week and finished at $6.359 on Thursday. That was the highest settlement since December 2008 and primarily reflected colder-than-normal weather, lower domestic output, strong LNG shipments and high coal prices. While the contract pulled back slightly from that level in Friday’s session to settle at $6.278 per MMBtu, it still registered a 10% weekly climb.
What Drove the Rally?
Investors might note that changes in temperature and weather forecasts can precipitate natural gas price swings. The latest models anticipate strong temperature-driven consumption into mid-April (especially in most regions of the West and the Midcontinent), which is a positive for prices. A late-winter cold front is expected to keep temperatures below average over the next few days, leading to a spike in heating load demand.
Natural gas also remained supported by a stable demand catalyst in the form of continued strong liquefied natural gas (“LNG”) feedgas deliveries. LNG shipments for export from the United States have been robust for months on the back of environmental reasons and record-high prices of the super-chilled fuel elsewhere. Now, with the Russia-Ukraine conflict, LNG is set to become even more coveted. As a matter of fact, the United States recently entered into a partnership with the EU to export additional LNG to wean the bloc off its dependence on Russian natural gas supplies. This means LNG deliveries are poised to rise further.
Looking at the supply side, production levels have remained around 2-3 billion cubic feet (Bcf) below the peak levels achieved in early-2022 and late-2021. Last week, natural gas output averaged 94.8 Bcf per day, well under the 97 Bcf per day high of the last year-end. This pattern has led to a widening of the inventory deficit to its five-year average, which currently stands at more than 17%. With the big upstream operators concentrating on free cash flow over production, volumes seem unlikely to recover heading into the summer demand season.
Last but not the least, rising coal prices are a boon to natural gas demand. Low inventories, steadily falling output and an impending ban on Russian imports have resulted in a run-up in coal prices to the highest since 2008. According to traders, this has made it easier for generators to burn gas rather than coal to produce power.
Buy These Gas-Heavy Names
Overall, given natural gas’ fundamental set-up, prices are expected to stay strong. The upward trend should aid gas-weighted producers.
To guide investors to the right picks, we highlight three companies that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.
Antero Resources (AR - Free Report) : Antero Resources’ asset base is concentrated on the Appalachian Basin — the most-prolific domestic gas basin. AR is valued at around $10.4 billion and carries a Zacks Rank of 1. AR has soared some 267.8% in a year.
The company has an expected earnings growth rate of 213.2% for the current year. The Zacks Consensus Estimate for Antero Resources’ 2022 earnings has been revised 26.3% upward over the last 60 days.
CNX Resources (CNX - Free Report) : The Zacks Rank #2 company is also a leading operator in the Appalachian Basin. CNX Resources has an expected earnings growth rate of 28.6% for the current year. The Zacks Consensus Estimate for CNX’ 2022 earnings has been revised 6.7% upward over the last 60 days.
CNX Resources beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters, the average being 22%. Valued at around $4.2 billion, CNX has gained some 56.8% in a year.
Comstock Resources (CRK - Free Report) : Comstock is active in the Haynesville shale in North Louisiana and East Texas — another premier natural gas basin. The 2022 Zacks Consensus Estimate for Frisco, TX-based producer indicates 102.6% earnings per share growth over 2021.
Comstock is valued at around $3.4 billion and carries a Zacks Rank of 2. The Zacks Consensus Estimate for CRK’s 2022 earnings has been revised 9.8% upward over the last 60 days. The upstream operator has rocketed some 195% in a year.
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3 Stocks to Buy as Natural Gas Rallies to Highest Since 2008
Natural gas prices moved past $6 per million British thermal units (MMBtu) in trading last week and finished at $6.359 on Thursday. That was the highest settlement since December 2008 and primarily reflected colder-than-normal weather, lower domestic output, strong LNG shipments and high coal prices. While the contract pulled back slightly from that level in Friday’s session to settle at $6.278 per MMBtu, it still registered a 10% weekly climb.
What Drove the Rally?
Investors might note that changes in temperature and weather forecasts can precipitate natural gas price swings. The latest models anticipate strong temperature-driven consumption into mid-April (especially in most regions of the West and the Midcontinent), which is a positive for prices. A late-winter cold front is expected to keep temperatures below average over the next few days, leading to a spike in heating load demand.
Natural gas also remained supported by a stable demand catalyst in the form of continued strong liquefied natural gas (“LNG”) feedgas deliveries. LNG shipments for export from the United States have been robust for months on the back of environmental reasons and record-high prices of the super-chilled fuel elsewhere. Now, with the Russia-Ukraine conflict, LNG is set to become even more coveted. As a matter of fact, the United States recently entered into a partnership with the EU to export additional LNG to wean the bloc off its dependence on Russian natural gas supplies. This means LNG deliveries are poised to rise further.
Looking at the supply side, production levels have remained around 2-3 billion cubic feet (Bcf) below the peak levels achieved in early-2022 and late-2021. Last week, natural gas output averaged 94.8 Bcf per day, well under the 97 Bcf per day high of the last year-end. This pattern has led to a widening of the inventory deficit to its five-year average, which currently stands at more than 17%. With the big upstream operators concentrating on free cash flow over production, volumes seem unlikely to recover heading into the summer demand season.
Last but not the least, rising coal prices are a boon to natural gas demand. Low inventories, steadily falling output and an impending ban on Russian imports have resulted in a run-up in coal prices to the highest since 2008. According to traders, this has made it easier for generators to burn gas rather than coal to produce power.
Buy These Gas-Heavy Names
Overall, given natural gas’ fundamental set-up, prices are expected to stay strong. The upward trend should aid gas-weighted producers.
To guide investors to the right picks, we highlight three companies that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). The Zacks Rank is a reliable tool that helps you to trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Antero Resources (AR - Free Report) : Antero Resources’ asset base is concentrated on the Appalachian Basin — the most-prolific domestic gas basin. AR is valued at around $10.4 billion and carries a Zacks Rank of 1. AR has soared some 267.8% in a year.
The company has an expected earnings growth rate of 213.2% for the current year. The Zacks Consensus Estimate for Antero Resources’ 2022 earnings has been revised 26.3% upward over the last 60 days.
CNX Resources (CNX - Free Report) : The Zacks Rank #2 company is also a leading operator in the Appalachian Basin. CNX Resources has an expected earnings growth rate of 28.6% for the current year. The Zacks Consensus Estimate for CNX’ 2022 earnings has been revised 6.7% upward over the last 60 days.
CNX Resources beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters, the average being 22%. Valued at around $4.2 billion, CNX has gained some 56.8% in a year.
Comstock Resources (CRK - Free Report) : Comstock is active in the Haynesville shale in North Louisiana and East Texas — another premier natural gas basin. The 2022 Zacks Consensus Estimate for Frisco, TX-based producer indicates 102.6% earnings per share growth over 2021.
Comstock is valued at around $3.4 billion and carries a Zacks Rank of 2. The Zacks Consensus Estimate for CRK’s 2022 earnings has been revised 9.8% upward over the last 60 days. The upstream operator has rocketed some 195% in a year.