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Sun, 14 Dec 2008
Natural Gas Stocks
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.
Posted 14:50

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