Before you can invest in natural gas stocks, it's important to understand how this industry is similar and different from other energy companies, particularly oil companies. Natural gas is similar to oil in that it has to be extracted, processed, and transported. And, like oil companies, you can find upstream, midstream, downstream and integrated (companies that engage in all three categories) companies.
However, the price of the underlying commodity is driven more by factors like the weather. Demand usually rises during winter in the Northern Hemisphere and moves lower during the warmer months. By contrast, oil prices tend to be driven by broader consumer demand factors. That's why crude oil futures are typically higher in the warmer months when travel demand is at its peak.
Like clockwork, natural gas futures have climbed about 20% in the 30 days ending October 10, 2024. And with so much geopolitical uncertainty to consider along with cooler temperatures, it's a good time to look at natural gas stocks.
In this special presentation, we're looking at seven companies involved in various categories that make up the natural gas industry that investors should consider ahead of the winter season.
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- Phillips 66
- Cheniere Energy
- Chesapeake Energy
- EQT Corporation
- Kinder Morgan
- Sempra
- Antero Resources
#1 - Phillips 66 (NYSE:PSX)
Phillips 66 (NYSE: PSX) is one of the largest integrated energy companies in the natural gas sector. PSX stock is up just 2.6% for the year and has taken a drubbing in the last six months, posting a decline of 17.2% in that time.
That said, the bullish argument for PSX stock comes from Phillips’ role as a natural gas refiner. Through the first two quarters of 2024, Phillips reported 98% crude utilization, the company’s highest rate in over five years.
Analysts have a Moderate Buy rating on Phillips 66 and a consensus price target of $151.21, which is just 10% higher than the closing price on October 10. However, the company reports earnings in late October and any upside surprises, particularly in an area like operating cash flow, should excite income investors.
That's because the company has announced plans to pay out 50% of its operating cash flow to investors through its dividend. That dividend has increased for the last 13 consecutive years at an annualized average growth rate of over 5.2% in the last three years. That’s more than double the current rate of inflation growth.
About Phillips 66
Phillips 66 operates as an energy manufacturing and logistics company in the United States, the United Kingdom, Germany, and internationally. It operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). The Midstream segment transports crude oil and other feedstocks; delivers refined petroleum products to market; provides terminaling and storage services for crude oil and refined petroleum products; transports, stores, fractionates, exports, and markets natural gas liquids; provides other fee-based processing services; and gathers, processes, transports, and markets natural gas.
Read More - Current Price
- $131.41
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $149.69 (13.9% Upside)
#2 - Cheniere Energy (NYSE:LNG)
As the company’s ticker symbol suggests, Cheniere Energy Inc. (NYSE: LNG) is one of the best ways for investors to gain exposure to the growing demand for liquefied natural gas (LNG). Liquefied natural gas is natural gas that has been chilled to levels that change it to a liquid state so that it can be easily and safely transported. In 2022, the United States became the largest exporter of LNG, mostly due to the need for European countries to replace the natural gas they were receiving from Russia.
Cheniere owns and operates two natural gas liquefaction and export facilities with long-term contracts ensuring solid cash flow. At peak capacity, the company can generate approximately 30 million metric tons of LNG every year.
LNG stock is up 12.4% in 2024 with all of that gain coming in the last six months when the stock surged ahead by over 21%. That has it pushing its 52-week high. But the company initiated a stock buyback program in June 2024 that is likely to fuel further growth in the stock price.
About Cheniere Energy
Cheniere Energy, Inc, an energy infrastructure company, primarily engages in the liquefied natural gas (LNG) related businesses in the United States. It owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana; and the Corpus Christi LNG terminal near Corpus Christi, Texas. The company also owns Creole Trail pipeline, a 94-mile natural gas supply pipeline that interconnects the Sabine Pass LNG Terminal with several interstate and intrastate pipelines; and operates Corpus Christi pipeline, a 21.5-mile natural gas supply pipeline that interconnects the Corpus Christi LNG terminal with various interstate and intrastate natural gas pipelines.
Read More - Current Price
- $220.78
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $208.44 (5.6% Downside)
#3 - Chesapeake Energy (NASDAQ:EXE)
Chesapeake Energy Corp. (NASDAQ: EXE) recently completed its $7.4 billion all-stock merger with Southwestern Energy Co. The combined business unit will be a separate business unit, Expand Energy Corp., and as of October 5, 2024, Chesapeake is trading under the ticker symbol EXE.
The combined company is now America’s largest natural gas producer and will be able to produce an output of approximately 3 billion cubic feet per day of natural gas.
Prior to the merger, Chesapeake stock was up 15% in 2024 and Southwestern stock was up about 8.5%. EXE stock closed at $86.61 on October 10, 2024. Analysts have started to weigh in on the outlook for the combined company and are generally bullish. However, mergers can be volatile for earnings, so if you’re thinking of getting involved, you may want to wait until the company’s October 2024 earnings report.
About Chesapeake Energy
Expand Energy Corporation is an independent natural gas producer principally in the United States. Expand Energy Corporation, formerly known as Chesapeake Energy Corporation, is based in OKLAHOMA CITY.
- Current Price
- $98.26
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 4 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $99.20 (1.0% Upside)
#4 - EQT Corporation (NYSE:EQT)
EQT Corporation (NYSE: EQT) is a natural gas exploration company with a mission to become the leading producer of clean-burning natural gas in the United States. Until the recent merger between Southwestern Energy and Chesapeake Energy, EQT was the largest natural gas producer in the United States, with over 670,000 acres of natural gas reserves.
The company still has nearly 4,000 drilling locations and among the lowest breakeven costs in the industry. This is the price at which it is profitable for a company to drill. Right now, EQT’s breakeven cost is around $2, and natural gas trading is at $2.68.
That assures investors that EQT is profitable. In fact, analysts project earnings growth of 150% in the next 12 months. Since September, several analysts have raised their price targets for EQT stock, which is up 13.8% in that time. Analysts believe there’s still about 15% upside for the stock.
About EQT
EQT Corporation operates as a natural gas production company in the United States. The company sells natural gas and natural gas liquids to marketers, utilities, and industrial customers through pipelines located in the Appalachian Basin. It also offers marketing services and contractual pipeline capacity management services.
Read More - Current Price
- $46.53
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $42.83 (7.9% Downside)
#5 - Kinder Morgan (NYSE:KMI)
Kinder Morgan Inc. (NYSE: KMI) is one of the leading midstream players in the natural gas sector. The company operates a network of pipelines that span over 83,000 miles in the United States and Canada. This gives the company over 700 billion cubic feet of working natural gas storage capacity that equates to over 165 million barrels.
Kinder Morgan isn’t a pure natural gas play. However, in 2020 the company began full commercial operation at its Elba Island Liquefaction facility in Georgia. This is a joint venture between Kinder Morgan and EIG and is backed by a 20-year contract with Shell LNG. The facility has an annual capacity of over 2.5 million tonnes of LNG for export.
KMI stock is up 34.4% in 2024 making it one of the best-performing energy stocks. That has it pushing its 52-week high. However, investors will hear from the company when it reports earnings in October which could send analysts estimates higher.
About Kinder Morgan
Kinder Morgan, Inc operates as an energy infrastructure company primarily in North America. The company operates through Natural Gas Pipelines, Products Pipelines, Terminals, and CO2 segments. The Natural Gas Pipelines segment owns and operates interstate and intrastate natural gas pipeline, and storage systems; natural gas gathering systems and natural gas processing and treating facilities; natural gas liquids fractionation facilities and transportation systems; and liquefied natural gas gasification, liquefaction, and storage facilities.
Read More - Current Price
- $28.00
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $25.36 (9.4% Downside)
#6 - Sempra (NYSE:SRE)
Sempra (NYSE: SRE) is another natural gas stock with a heavy focus on the LNG export market. However, the company is first and foremost a utility company. Many investors have faded utilities stocks for several years as stable, but unspectacular demand growth led investors to other opportunities.
However, with electricity demand expected to flourish through the remainder of the decade, it could be a good time for investors to get involved with a company like Sempra. One reason for the bullish sentiment is the company’s service area, which encompasses San Diego County, which analysts believe will have one of the strongest growth rates.
SRE stock is up 8.8% in 2024. That puts it within about 5% of the consensus price target. However, analysts (including Bank of America) have been raising their price targets. And investors get a safe, growing dividend that currently yields 3.05%.
About Sempra
Sempra operates as an energy infrastructure company in the United States and internationally. It operates through three segments: Sempra California, Sempra Texas Utilities, and Sempra Infrastructure. The Sempra California segment provides electric services; and natural gas services to San Diego County.
Read More - Current Price
- $93.12
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 10 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $89.00 (4.4% Downside)
#7 - Antero Resources (NYSE:AR)
Antero Resources Corp. (NYSE: AR) is up about 26% in 2024, and the immediate reason is not about natural gas but crude oil. The company was one of the beneficiaries when the OPEC+ nations capped their output. That created an opportunity for U.S. companies, and Antero stepped in.
As with other names on this list, Antero operates in the Appalachian basin, which is critical for natural gas production. In the company’s most recent earnings report, it reported an average net production of 3.4 billion cubic feet equivalent per day. That was a 1% year-over-year increase, and the company raised its full-year guidance.
The short-term concern about Antero is the company’s valuation. The stock trades at a price-to-earnings (P/E) ratio of 144x as of October 10, 2024. However, the company is expected to post strong earnings growth that may support higher prices. To that end, analysts remain mostly bullish on the stock, maintaining a Moderate Buy rating and a $32.81 price target, which still gives investors a 13% upside.
About Antero Resources
Antero Resources Corporation, an independent oil and natural gas company, engages in the development, production, exploration, and acquisition of natural gas, natural gas liquids (NGLs), and oil properties in the United States. It operates in three segments: Exploration and Development; Marketing; and Equity Method Investment in Antero Midstream.
Read More - Current Price
- $33.19
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $32.83 (1.1% Downside)
As this presentation shows, the natural gas industry has inherent complexity. However, from an investment standpoint, it boils down to the economics of supply and demand. When demand outpaces supply, whether in reality or by perception, natural gas prices rise. Conversely, when the market is well supplied, prices fall.
However, as two recent hurricanes made clear, it doesn't take much to disrupt the delicate balance of supply and demand. And as investors saw in 2022 and are seeing again in 2024, geopolitical events can cause the price of natural gas to spike.
It's fair to say that prepping for black swan events is more the domain of nimble traders. But even if you're a long-term investor, it can make sense to have exposure to natural gas stocks like the ones in this presentation. Not only can they offer value as good momentum plays, but some of these stocks pay a dividend that can help investors generate additional income.
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