Natural gas prices have collapsed over the last few months. The combination of geopolitical tensions, economic woes, and technical breakdowns continues to keep natural gas prices low.
The cooler temperatures in recent days and the lack of tropical storms in the Gulf of Mexico haven’t supported prices either.
Investors in natural gas stocks have taken a hit since Memorial Day weekend.
In July alone, the average Henry Hub price declined from $2.26/MMBtu to $2.20MMBtu – and the dip may not be over…
Price declines have grown even worse in Asian and European markets due to rising supplies and sluggish demand.
With that in mind, the Energy Information Administration forecast that the average Henry Hub price would be $2.39 in 2019 before recovering to an average $2.75 in 2020.
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If you’re a contrarian investor, however, you have an opportunity to buy into rock-bottom natural gas stocks ahead of the fall and winter months.
Given that most investors anticipate that a recession is coming, they should also prepare for a short-term bounce in inflation before a decline in GDP.
Energy stocks, despite their recent downturns, provide an opportunity to capture sharp gains.
To identify the best natural gas stocks to buy, we recommend the Money Morning Stock VQScore™ system.
This proprietary system tracks more than 1,500 profitable companies and assigns each with a score from 1 to 4.9. The higher the score, the more likely the company is to break out in the coming months.
Today, we discuss the three best natural gas stocks to buy right now.
Natural Gas Stock to Buy, No. 3
Carrizo Oil & Gas (NASDAQ: CRZO) is an unconventional producer of oil and natural gas across Texas.
Since its launch 10 years ago in the Barnett Shale, the company has established itself as a leading horizontal well driller. Its primary operations center on the Eagle Ford Shale in South Texas and the Delaware Basin in West Texas.
The firm will benefit from rising prices of both crude and oil given its 329 million barrels of oil equivalent on its balance sheet.
The stock reacts a bit more aggressively to the broader changes in the market with a Beta of 2.2 compared to the industry average of 0.85. However, it also provides a source of inexpensive cash flow that should attract more capital in the future.
The stock trades at a price-to-cash-flow of just 6.5. Any figure under 10 is an attractive place to start when analyzing potential breakout stocks.
But the most important number is the company’s VQScore of 4.9.
That figure suggests that CRZO is a stock poised for massive gains in the months ahead. Carrizo has a one-year price target of $13 per share.
This represents about a 30% gain from Friday’s closing price.
Natural Gas Stock to Buy, No. 2
Investors looking for an inexpensive natural gas stock with big upside should consider Encana Corp. (NYSE: ECA). Shares have retraced from a 52-week high of $13.61 due to the combination of falling gas prices and geopolitical woes.
However, the stock just topped Wall Street earnings last week with a solid beat…
The firm reported quarterly earnings of $0.21 per share, well ahead of forecasts of $0.17. That 23.5% earnings surprise is a sign of a company that has been able to contain costs and pay down debt all while bolstering cash flow and increasing its dividend 25% year to date.
Encana maintains a diverse number of assets across multiple basins in North America. These locations comprise Montney and Dubernay in Alberta, Canada; the Williston in North Dakota; the Unita in Utah; Eagle Ford in Texas; and Anadarko in Oklahoma.
This diverse set of assets would appreciate greatly in price from a recovery in natural gas prices. And the Money Morning VQScore of 4.9 suggests that the stock is poised to break out as investors recognize the potential upside for this stock.
The company has a one-year price target of $7 per share. That figure represents a potential upside of 62% from Friday’s closing price.
Natural Gas Stock to Buy, No. 1
Our final natural gas stock is a major contrarian play, given the sharp downturn that its stock has faced in recent months. Founded in 1980, Penn Virginia Corp. (NASDAQ: PVAC) is an independent oil and gas producer with operations in the Eagle Ford shale in south Texas. It has roughly 123 million barrels of oil equivalent in proven reserves.
Despite its sharp decline in 2018-19, the company has a VQScore of 4.9. And a solid earnings report last Thursday puts PVAC on track for a major breakout in the second half of 2019…
During the first half of 2019, the firm reported a 37% increase in production and reduced operating expenses by 5%. It also reported a 33% decline in its leverage ratio in Q2 2019 compared to the same period last year.
In other words, the company is on the right track. On Thursday, shares popped more than 9% after the firm easily topped analysts’ projections and reported a strong uptick in production from previous quarters.
PVAC has a one-year price target of $650 per share. That represents a potential upside of nearly 106% from Friday’s closing price.
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