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Bet on 4 Shale Producers as Winter Chills Boost Gas Price

This is an opportune moment to invest in natural gas producers since the futures price of the commodity recently crossed the psychological mark of $4 per million British thermal units (MMBtu) for the first time since late-2014.

The demand story, that is primarily backing the price rally, is not just limited to room heating this winter. Escalating export volumes of the commodity owing to rising global demand for clean energy is another catalyst. But, apprehensions of a freezing winter this year with tight supply of natural gas for heating up rooms are also fueling the rise.

Natural Gas Price Strong Amid Tight Supply

Winter paid an early visit to the United States this year, taking most analysts by surprise. Now, there has been several forecasts that the nation will witness a frigid winter, as reported by media reports.

Meanwhile, as of Oct 31, 2018, the United States wrapped up its natural gas refill season with underground storage level at 3,208 billion cubic feet (Bcf) — per the U.S. Energy Information Administration (EIA). EIA added that the United States has never closed its natural gas refill season — generally during Apr 1-Oct 31 — at such a low level in the past 13 years.  

Overall, with tight natural gas supplies amid forecasts of a bitter cold, analysts expect the commodity futures price – recently traded at $4.929 per MMBtu, the highest since February 2014 – to remain high throughout winter. In other words, since natural gas is used for room heating purposes, demand for the commodity will likely to strengthen since the storage level is at a record low mark.

Bet on Marcellus, Utica & Permian Producers

The fate of natural gas producers is positively correlated with the price of the commodity. The favorable gas pricing scenario will likely prompt upstream energy players to generate more cashflows for shareholders.

Hence, producers of natural gas in some of the prolific shale resources like Marcellus, Utica and Permian are well placed to capitalize on the strong commodity demand. Notably, in North America, Marcellus is touted to be among the richest gas fields. 

Our Choices

We have employed our proprietary Stock Screener to narrow down the search for winning stocks to the following four. All the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Denver, CO, Antero Resources Corporation AR is among the leading upstream energy players with operations in the Marcellus and Utica shale plays. In the Utica shale, the company has more than 137,000 net acres and over 484,000 net acres in the Marcellus.

Since, natural gas contributes to more than 70% of the company’s production, the stock’s prospects seem bright. We expect the stock to see earnings growth of 233.3% through 2018.

Gulfport Energy Corporation GPOR, headquartered in Oklahoma City, OK, is a leading natural gas producer in the domestic market. In the Utica shale, the company has 215,000 net acres. The company, with natural gas accounting for nearly 90% of its total production, will likely gain from the uptick in commodity price.

The stock is expected to record year-over-year earnings growth of 23.4% in 2018.

Headquartered in Fort Worth, TX, Approach Resources Inc. AREX is also a leading explorer and producer with strong presence in the Permian Basin. Of the total production, natural gas contributes the highest proportion, followed by natural gas liquid and oil.

Approach is expected to see year-over-year earnings growth of 33.3% in 2018.

Apache Corporation APA, based in Houston, TX, is among the leading natural gas explorers and producers. In the Permian Basin, Apache has exposure to more than 3.1 million gross acres. Notably, the company’s production has equal weightage to oil and natural gas.

Hence, with significant exposure to natural gas production, the company is likely to see earnings growth of 737.5% in 2018.

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