Tis the Season for a Natgas Rebound… and Here’s the Company to Play It!
2015 has been a tough year for investors.
Nearly every sector is in the red.
Energy and precious metal companies have been slammed by commodity prices and economic uncertainty. There is no denying we have seen some atrocious movements in the market.
However, there is an old saying that couldn’t be any truer for our situation…
“Buy low, sell high.”
Indeed, as oil and gas companies seem to go lower and lower, we are presented with a fabulous opportunity — when you look in the right spot. In fact, some of the best companies in the world are currently being sold at extremely reduced prices. Like someone in the supermarket — we can take advantage of a sale when we see it.
Now, you could technically say that most, if not all, companies in the oil and gas sector are currently on sale. This may be true, but some companies fall and never recover. So if we plan on buying low, there had better be a good reason.
Fortunately, we have many good reasons for today’s pick. In fact, this company has the potential to be the “comeback trade of the year” — just read below!
Beaten-Down Natgas Set to Rebound!
The company I am going to introduce today is a big name in the natural gas industry. As you may know, natural gas is currently at recent historically low prices. However, there is strong evidence as to why this will quickly change.
The first reason — the winter months are quickly approaching. During this time, natural gas is in high demand as people start to crank up the heat.
Remember that whole “polar vortex” fiasco? Well, meteorologists are predicting it will be back this year, giving rise to frigid temperatures across North America. While it may not be fun to go outside during a cold snap, you can expect a spike in the natural gas price as demand surges.
Second, Obama’s “Clean Power Plan” has set out to eliminate U.S. coal power plants, which will gradually be replaced by natural gas plants. Over time, we are going to see a dramatic increase in the need for natural gas as coal is phased out.
Third, while weather and coal are shorter-term reasons to expect an increase in demand, there is a long-term prospect in the form of liquefied natural gas, or LNG. LNG is natural gas that has been compressed into a liquid and is kept at cold temperatures. It has much more energy density than natural gas and even diesel fuel, which makes it cost-efficient to transport where pipelines are not available.
Pretty soon, the U.S. plans on exporting a large amount of LNG overseas, and it is expected to make up 10% of global crude production by 2020 — reducing the supply we have at home.
This brings up another point. So far, I’ve shared just one side of the coin. That is, the first three reasons I like natural gas are due to coming demand for it. However, while we are expecting a rise in demand, we are also expecting a fall in supply.
You see, natural gas is often a byproduct of oil production. While some firms specialize in natural gas regions, a lot of the natural gas we use is from oil companies that have gotten it through oil fracking.
With oil prices in the doldrums and production on the decline, there will be less natural gas on the market. This will pull back U.S. supply AND give companies that specialize in natural gas the upper hand in pricing and market share.
Lastly, with natural gas prices hovering around historic lows, there is a chance that small natural gas plays will fizzle out because they simply cannot sustain themselves. We have already seen a few bankruptcies this year. In that case, big players with enough assets to survive will have a larger share of the market.
As you can see, there is a plethora of reasons why natural gas should soon be on the rise.
Recently I suggested my paid-up readers take a look at Range Resources Corp. (RRC: NYSE), a Texas-based independent natural gas company.
Range is a top natural gas producer in North America, due to its positioning on the Marcellus Shale. Range has nearly 1 million acres of hydrocarbon-rich bedrock, which is expected to supply the company for over 20 years.
Another reason I like Range, here is that the company is very reactive to natural gas prices. When you overlay Range and the Henry Hub natural gas spot price, you’ll see a striking similarity. So when natural gas prices start to head higher, Range should do very well.
I think the best option here is to wait for natural gas to find its short-term foothold and then pull the trigger. When that happens, Range is a buy in my book, and should be in yours too.
Keep this rebound opportunity on your radar.