Natural Gas Stocks

What are your thoughts on natural gas? You would think that since oil has remained relatively steady and has experienced some spikes every once in a while that the public would get nervous about seeing $150 per barrel again. This in turn would lead to natural gas prices going up. However, every spike in the price of oil has eventually retreated. There is no sustained movement. More importantly, every time there is a reading on natural gas in the United States, it seems to beat a previous record.

It’s a simple supply and demand situation. We have a ton of supply and not much demand. Keep in mind that this can change overnight, though. If something happens in the world, such as Israel striking Iran or South Korea/US declaring war on North Korea, oil prices will experience a sustained spike. This will lead to an increase in natural gas prices as well. Since natural gas prices are so low, it’s an excellent time to get in. You can do so by purchasing natural gas stocks. However, this is much easier said than done. And when it comes to natural gas stocks, not everything is as it seems. You must be very careful when investing in this arena. The information below should be of some assistance to you.

The average investor will see an ETF called United States Natural Gas Fund (UNG) and automatically assume that this would be a good place to invest in natural gas. Well, they couldn’t be more wrong. Decay eats away at UNG as if this ETF is corroded. In other words, do not go anywhere near it.

What about Chesapeake Energy Corporation (CHK)? When an amateur investor thinks about natural gas stocks, he’s first going to think about CHK. This company has a solid reputation. The catch is that this solid reputation is based on the stock’s performance several years ago. What have you done for me lately? Let’s see. In the past 52 weeks, CHK has been down 5.93%. This is not terrible considering the current economic and stock market conditions, but it’s not a good way to make money, either. CHK also has $601 million in cash and $68 billion in debt. With a potential debt crisis on the horizon, companies like this are going to be in trouble. Add the fact that 6.8% of the float is short (betting against the stock) and you might want to steer clear of CHK. Or, if you look at their next 5 year plan, you might be bullish on their goals because they're focusing on oil and natural gas, and are making great management calls. DISCLOSURE: I own shares in CHK.

Natural gas stocks are a great way to make money, as I've talked about in other articles. I love writing about making money online, and there's a reason.

Now let’s look at a no-name company like Vaalco Energy (EGY). This oil and natural gas exploration company has $90 million in cash and no debt. That’s right – no debt. If you’re a savvy investor, you know what no debt and small company equals. It equals potential buyout candidate. But even if this company is not bought, there are still a few big positives here. One, EGY has recently shown 41.20% in revenue growth. Two, only 3.80% of the float is short. And three, EGY has been up 25.56% in the past 52 weeks. That is a very impressive number in a tough stock market and natural gas market.

Another good natural gas stock to consider is Petroleum Development Corporation (PETD). This company has $19.45 million in cash and $237.80 million in debt. Those are not great numbers, but they’re not terrible, either. This company is showing enough growth that they can pay off that debt in the near future. They have recently shown 17.80% quarterly revenue growth. More impressively, this stock has been up 96.20% in the past 52 weeks. Wow! The only worrisome number is that 6.20% of the float is short, which is not outrageous, but it still shows that many people out there are not believers.

Other natural gas stocks to consider researching are NGAS and COG.