Energy stocks – particularly those focused on natural gas – look particularly interesting at the moment. natural gas prices plunged by 62% in 2023. They’ve fallen even more since then but analysts don’t believe that prices will stay low forever.
Companies that produce natural gas have naturally been affected. They have less incentive to produce natural gas the longer those prices remain low. The result is that large producers are beginning to cut production “strategically”. One of the nation’s largest producers stated that it would reduce production by as much as 8% beginning those cuts in late February.
Those cuts will likely result in higher home heating bills for consumers in the near to mid future. However, cuts should also naturally increase the price of natural gas which will benefit investors. Let’s take a look at seven energy stocks to consider as natural gas prices begin to inch upward.
The Williams Companies (WMB)
The Williams Companies (NYSE:WMB) is one of the leading firms in natural gas infrastructure. The stock represents a company that owns and operates pipelines and other midstream assets.
Many other large energy firms tend to be oil focused but the Williams companies is focused on natural gas making it a purer play in relation to low natural gas prices.
The Williams Companies is also one of the better choices in the natural gas sector for those investors seeking stability. The company increased its net income by $478 million in the fourth quarter and $1.2 billion in 2023 overall.
The company was already telegraphing strength weeks earlier when it increased its dividend by more than 6%. That dividend smooths volatility overall adding an additional 5% return for investors. In short, the Williams Companies is a stock that natural gas investors can rely on. At the same time, it provides potentially strong returns and is a solid choice.
Cheniere Energy (LNG)
Cheniere Energy (NYSE:LNG) is something of a pioneer among natural gas stocks. Back in 2016, Cheniere Energy became the first American company to export liquefied natural gas. A few years later it became a Fortune 500 company.
The reason I mentioned the company’s export history is that exports have largely propped up natural gas firms over the last year. With prices low in the U.S., those firms have had to look abroad for margin opportunities.
That put Cheniere Energy in a strong position overall. The result was that the company’s 2023 performance was above the midpoint of guidance. The company also expects that 2024 will be equally strong with expectations of reaching beyond the midpoint of guidance for the year.
Company-wide earnings spiked during 2023 allowing the company to repurchase 9.5 million shares of its stock. 2024 has started similarly with the company repurchasing 2.9 million shares of its stock between the New Year and mid-February.
ONEOK (OKE)
ONEOK (NYSE:OKE) is one of the bigger names in the natural gas stocks and also one of the more stable for income investors. The company last reduced its dividend in 1999 and it continues to pay roughly 5% at the moment.
The company announced a $2 billion dollar share repurchase program in January. ONEOK intends to utilize those repurchases strategically over the next four years. The overall thrust of the last few sentences is that ONEOK is a strong income stock for investors to consider.
The company also gave guidance for double digit adjusted EBITDA growth in 2024.
One of the other primary things to note about ONEOK is that the company is a diversified play in natural gas. The company engages in the broad midstream transportation of natural gas. However, it is more than just a midstream transport company with a lot of processing as well.
Invest for the projected growth in 2024 and dividend income. If natural gas prices pick up like expected things could be even better.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) is poised to become a strong beneficiary of rising natural gas prices moving forward. The company and its stock are slightly different from some others making it intriguing.
Devon Energy adheres to a fixed plus variable dividend structure that richly rewards investors during periods of strength. The company pays a base dividend that it can maintain when energy prices are lower and a variable dividend that rises as energy prices increase.
The result is that investors who catch Devon Energy at the right time end up being rewarded handsomely. The stock isn’t one for income investors who value a predictable income stream from dividends. Instead, Devon Energy is better suited to investors who like to gamble a bit more.
It looks like investors have caught on to that notion as Devon Energy shares have increased by more than 9% over the past month. The company itself has proven to be a wise investor and creates value over the long term as measured by its return on investment.
EQT Corporation (EQT)
EQT Corporation (NYSE:EQT) is arguably the natural gas stock in the best position to influence the market in 2024. The company is the largest producer of natural gas in the United States and was referenced in the introduction of this article.
EQT Corporation began cutting production in February and is expected to reduce production by 7 to 8% this quarter. The company is clearly attempting to reduce supply in an effort to increase prices. Given its position as the largest U.S. producer, it may wield the influence to do so. Natural gas stocks have been rising over the past few weeks which suggests that the company is strongly positioned.
The other thing to note here is that EQT stock has much greater upside potential than any of the natural gas stocks mentioned above. Analysts believe that it could nearly double in price from a current $33. Income investors should also note that EQT Corporation is more focused on growth. Its dividend yields a relatively low 1.8%.
Coterra Energy (CTRA)
Coterra Energy (NYSE:CTRA) is an exploration and production stock which is important to note in relation to gas prices. The point here is that Coterra Energy explores oil and gas production assets whereas many of the other stocks on this list are primarily natural gas related.
Oil first companies like Coterra Energy tend to derive a lot of their natural gas production as a result of oil exploration. It’s essentially a byproduct of oil exploration and thus the company is less sensitive to gas price fluctuations. Instead, Coterra Energy generally gets a bonus from the natural gas extracted alongside the crude oil it produces. That makes it a more diversified energy play that benefits from potential oil price increases as well as byproduct natural gas price increases.
Like EQT Corporation, Coterra Energy is primarily a growth play in natural gas. It includes a modest dividend yielding less than 1%. It has also shown strong growth since mid-February along with a lot of the natural gas sector.
Cenovus Energy (CVE)
Cenovus Energy (NYSE:CVE) is the last stock on this list to buy with the expectation of a rebound in dirt cheap natural gas prices. The company is a lot like Coterra Energy immediately above in that it produces both crude oil and natural gas.
The company produces crude oil and natural gas in both Canada and Asia with refinery operations in the United States and Canada. It is a well-diversified energy company. Another thing that makes Cenovus Energy unique is that it pays dividends and royalties to investors.
The company has an upstream and downstream business with royalties coming from upstream production. That means the company pays royalties to asset owners, actually decreasing income in the process. While that may seem like a detriment to investors, the overall outlook on CVE stock is strong. Shares currently trade for $19 with a consensus price of $27. One analyst even believes that share prices could rise as high as $33.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.