Seasonal and cyclical timing favors current
purchase of Buy-recommended, large cap natural gas
producers Devon Energy (DVN), Encana (ECA) and XTO
Energy (XTO). The long-term natural gas prospects
are also attractive for Hold-rated Anadarko
Petroleum (APC) and EOG Resources (EOG) as well as
for unrated Chesapeake Energy (CHK) rounding out a
six stock peer group.
Seasonally, stocks do better after October and
energy investors can dream about a cold winter.
Cyclically, stocks have not been lower compared to
recent highs than at practically any time in the
past 50 years. Yet, we restrain the number of buy
recommendations while stock prices remain below
200-day averages. Through the latest quarter the
natural gas peers have registered double digit
annual volume growth. The trends are more similar
on a per share basis while debt-adjustment
introduces its own volatility.
At McDep Ratios of 0.64 to 0.79, the stocks are
valued at natural gas prices well below $10 a
million btu that a McDep Ratio of 1.0 would
signify. Six-year futures, after touching a low of
$7.47 a million btu in our weekly tabulation on the
last Monday in October, are currently at $7.83. A
discount to the oil-equivalent price of nearly $13
a million btu tells a good news tale of abundant
supply of clean fuel on the North American
continent. We like low McDep Ratio stocks
concentrated on natural gas.