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Natural Gas Set to Extend Q2's Bull Run: 5 Stocks in Focus

U.S. natural gas prices posted a gain of 40% for the past three months — the second-largest quarterly increase since the April-June period of 2016.

Natural Gas Closes Out a Strong Quarter

The commodity settled at 3.65 per MMBtu on the New York Mercantile Exchange on Jun 30. Following past quarter’s stunning rally, the fuel has surged nearly 150% since late June 2020 when natural gas had collapsed to a 25-year low below $1.50 per MMBtu due to weak consumption from warmer-than-expected winter 2019-2020 and a coronavirus-induced drop off in usage.

Coming back to the second quarter of 2021, the big returns trace its origins to three factors: late-winter cold temperatures and snow in April, early summer heat in June, and strong LNG export volumes.

Is There More Room for the Rally to Run?

Natural gas prices finished June at its highest since December 2018. While industry observers point to plenty of volatility ahead, most believe that there's more upside.

As is the norm with natural gas, changes in temperature and weather forecasts can lead to price swings. The latest models are anticipating higher temperature-driven consumption, following which prices have soared. As a matter of fact, in most parts of the country, record-breaking heat has led to a higher power burn (or cooling demand) for the fuel. With healthy LNG export likely to provide further support to U.S. natural gas futures, the price action continues to be bullish.

Following a spate of smaller-than-expected inventory builds, current natural gas stocks — at 2,558 billion cubic feet (Bcf) — is 510 Bcf (16.6%) below the 2020 level at this time and 143 Bcf (5.3%) lower than the five-year (2016-2020) average. The low stockpile levels have also buoyed the price of the energy commodity with apprehension that the market might enter the winter withdrawal season with supplies in storage well below normal.

Overall, the second half of this year looks bullish for natural gas.

5 Natural Gas Stocks That Warrant a Look

The upward trend should aid gas-weighted producers. We present five companies that investors should watch out for.

SilverBow Resources SBOW: A pure-play upstream operator in the Eagle Ford Shale in South Texas, SilverBow Resources is a natural gas-focused exploration and production company. Over 60 days, the Zacks Rank #1 (Strong Buy) company has seen the Zacks Consensus Estimate for 2021 increase 38.7%. SilverBow controls 165,000 net acres in the Eagle Ford and around 80% of its total output comprises natural gas. SilverBow Resources’ exposure to premium markets and focus on costs and margins should help it to benefit from rising natural gas prices.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Range Resources Corporation RRC: The #1 Ranked company has a strong footing in the prolific Appalachian Basin. In the gas-rich resource, the upstream firm has huge inventories of low-risk drilling sites that are likely to provide production for several decades. About 70% of the company’s total output is natural gas. Over 60 days, Range Resources has seen the Zacks Consensus Estimate for 2021 increase 28.3%.

Antero Resources AR: The company's asset base — primarily focused on natural gas — is also concentrated on the Appalachian Basin. Antero Resources has amassed approximately 513,000 net acres of rich properties located in the in West Virginia and Ohio. Of Antero Resources’ total output, more than 69% comprises natural gas. Over 60 days, the Zacks Rank #2 (Buy) firm has seen the Zacks Consensus Estimate for 2021 increase 31.3%.

Comstock Resources CRK: Comstock is a leading operator in the Haynesville shale — a premier natural gas basin — with 307,000 net acres. About 98% of the Zacks Rank #3 (Hold) company’s total output is natural gas. Over 60 days, Comstock has seen the Zacks Consensus Estimate for 2021 increase 15.2%. The company has a strong track record of high returns on capital employed, while its best-in-class cost structure drives free cash flow generation.

EQT Corporation EQT: EQT is primarily an explorer and producer of natural gas, with primary focus on the Appalachian Basin in Ohio, Pennsylvania and West Virginia. In terms of average daily sales volumes, EQT Corp. — with a Zacks Rank of 3 — is the largest natural gas producer in the domestic market. Approximately 95% of EQT’s production is natural gas. Over 60 days, the company has seen the Zacks Consensus Estimate for 2021 increase 30.6%.

Zacks Names “Single Best Pick to Double”

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Comstock Resources, Inc. (CRK): Free Stock Analysis Report
 
Range Resources Corporation (RRC): Free Stock Analysis Report
 
EQT Corporation (EQT): Free Stock Analysis Report
 
Antero Resources Corporation (AR): Free Stock Analysis Report
 
SilverBow Resources Inc. (SBOW): Free Stock Analysis Report
 
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