Three Commodity Stocks To Buy As Winter Approaches…
Depending on where you reside in the US, you’re likely aware Old Man Winter is knocking on the front door.
According to the National Oceanic and Atmospheric Administration (NOAA), temperatures in the Midwest, South, and Eastern US are forecast to be well below normal for the next 6-10 days.
Take a look…
Of course, there’s no guarantee these below normal temperatures will stick around until winter officially arrives in late December. However, regardless of whether we get a warming spell or not, now is still the perfect time to winterize your portfolio.
Let me explain…
With a growing number of weather forecasters calling for an extremely cold winter, it’s highly likely we see natural gas rise over the $4 mmBtu mark by February.
As a matter of fact, some analysts are going out on a limb and predicting natural gas will eclipse last winter’s high of $4.40 mmBtu.
That means investing in natural gas producers now will likely lead to outsized gains in 2014. After all, rising natural gas prices will support higher internal rates of return (IRR) for unhedged production.
However, picking a high potential natural gas company is no easy task…
The dramatic collapse in the price of natural gas over the past few years created a tenuous financial situation for many in the industry. A large swath of producers fell on hard times as their balance sheets turned upside down thanks to collapsing margins.
That’s why it’s best to stick to mid- to large-cap companies with industry leading production costs. Doing so will alleviate much of the risk of investing in this tumultuous industry.
So which companies deserve the most attention?
Without question, the lowest cost producers of natural gas in the US are SouthWestern Energy (SWN), Cabot Oil & Gas (COG), and Ultra Petroleum (UPL).
In fact, all three companies have lifting costs below $1 per mcf and finding and development costs under $1.50.
In case you’re unaware, those are spectacularly low rates, which will put these companies at the top of Wall Street’s buy list when natural gas starts rising.
Speaking of rising prices…
At $4 mmBtu, COG will have IRR approaching 150% in their Marcellus acreage. SWN and UPL aren’t quite as high as COG, but they’ll still see margins expand drastically when natural gas prices jump upwards.
So if you’re looking for ways to warm up your portfolio this winter, look no further than the three companies above!
Until Next Time,
Justin Bennett
Category: Energy, Natural Gas
