Bottom Fishing For A Natural Gas Investment
New Jersey Resources , South Jersey Industries , and Chesapeake Utilities: I've grouped these three together because they are all in the business of natural gas distribution in the MidAtlantic area, which is still the number one area in the country for residential heating oil usage. Therefore these three are all beneficiaries of the trend toward higher natural gas usage in this region, and thus have the highest rate of growth. Of the three, SJI is the most beaten down since January, but CPK is the cheapest based on its projected earnings next year. Of the three, SJI is the least favored by the analysts with an average rating, per Yahoo Finance, of 1.6 out of 5, Customized NCAA Jersey is a little more than 3, and CPK in between at 2.3, but remember, we are bottom fishing, and we might be tempted to take the opposite view
I happen to like what this company is doing. Oneok is an integrated natural gas provider which is capturing natural gas liquids from the various oil deposits in the Oklahoma/Kansas/Texas region, as well as the Bakken in North Dakota, and distributing it in the form of natural gas to pipelines and customers in the middle of the country. About 60% of their revenues are what they call "nondiscretionary and fee based", which is a polite way of saying that they have a lot of captive customers depending on them and only them to keep running. The company has announced a 2 for 1 stock split which will occur at the end of May, the stock price is a bit beaten down from earlier in the year, and the company has an active capital expansion program underway. There is one question: what will the dividend be after the split? The PE is the highest of this little group, which may be an artifact of investors wanting to capture some value during the split.Southwest Gas : This company operates natural gas distribution in the Nevada/Arizona/Western California area, a part of the country not known for its heating oil demand, but well known for its electricity demand. The company has experienced growth this year mainly because the depressed economy in the region has improved a bit. This company has a history of dividend increases, and 50% of Nevada's electrical power is now generated by coal, so there are some prospects to eventually convert some of this over.Laclede Group Customized NCAA Jersey : This company is operating a pipeline and distribution network originating mainly in Oklahoma, and distributing gas to customers in the St. Louis area. They are benefiting from the availability of low cost supplies from shale gas in that region. According to their most recent investor presentation, the company is targeting nonregulated and therefore pricefriendly business, as well as natural gas fired power generation. The company has already announced a 4 cent per share dividend increase for the 2012 fiscal year, dividends have increased every year for the last five, the dividend yield is already the highest in this group, and so that might be the compelling reason to like the stock.
National Fuel Gas : This company is involved in transporting natural gas from the pipeline system as well as some of the shale deposits in Western Pennsylvania and marketing it in the Buffalo NY area. The company has still managed positive EPS growth in the backyard of the coal Customized NCAA Jersey industry, and selling into a loweconomicgrowth market. The company is also doing some exploration and production in the Marcellus Shale area of Pennsylvania, also in California, but some of their rigs in the Marcellus are shut down because of the current low price for gas, and they anticipate further rig curtailment in 2013.
The risks? I suppose like in all bottom fishing expeditions, there is the possibility that things could get even worse in this industry, or there could be more general economic chaos. The argument can be made that in each of these cases there is more opportunity on the upside at least for the time being.
