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Russian roulette? Not with these 5 stocks
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In the short-run, natural-gas supply worries will increase efforts to find gas in politically stable areas. Expect more drilling in the United States, Canada, and any other country where government policy favors production. A move like Russia's raises global fears of supply disruption and increases drilling activity even in areas far removed from the specific danger.
In the longer-run, I'd expect Europe to push to develop alternative energy sources -- nuclear or wind or solar. My Friday, Jan. 6 column will take a look at some of the winners from that long-term trend.
But today, I'm sticking to the short-term, six months or so. Here are five stocks likely to benefit in coming months from worries about natural-gas supplies.
Occidental Petroleum (OXY, news, msgs) got a huge pop on Tuesday, rising almost 8% on the day. But I think there's more ahead thanks to the company's recent winning lease bids in Libya. The logic is pretty simple: Libya's got the oil and gas reserves. The reserves haven't been developed because of the country's status, until recently, as a global pariah. Occidental has a long history in the country so the company will be able to get the resources out of the ground. And pipelines and liquefied natural gas terminals that have been built or are being built will make it easy to get the gas and oil to Europe. The fact that Libya is now thought of as a stable and reliable supplier tells you just about all you need to know about the global energy supply-demand crunch. Our StockScouter rates these shares an 8 out of a possible 10.
Apache (APA, news, msgs) has been successfully pursuing a strategy, in recent years, of buying into fields that super-majors, such as BP (BP, news, msgs), think are past their prime, and then, by applying the best of current technology, getting a whole lot more oil and gas out of the ground. One place where Apache has applied this strategy recently: The Forties Field in the North Sea, where the company continues to upgrade the infrastructure on this mature field. Production from the field climbed 4% in the third quarter from production in the second quarter. It doesn't hurt either that Apache's concession at the Qasr field in Egypt has produced a major natural gas reserve. The company recently signed a gas sales agreement with Egyptian General Petroleum covering 2.1 trillion cubic feet of natural gas from Qasr. Our Stock Scouter rates these shares a 7 out of a possible 10.
Peabody Energy (BTU, news, msgs) offers a great mix for these times of energy supply scares: The company's coal comes from politically stable sources such as Wyoming's Powder River Basin; the company looks like it will grow production by something close to 10% in 2006; and the company looks like it will be able to add to its supply of low-sulfur coal. (Peabody Energy is in the process of permitting an ultra-low sulfur coal mine with estimated future production of 40 million tons a year.) Our StockScouter rates these shares a 6 out of a possible 10.
Although U.S.-based natural gas stocks aren't likely to get as much of a bounce from fears of a European supply disruption as, say, oil stocks, they will get a push as supply worries anywhere in the world put a floor -- and a rising floor at that -- under natural gas prices. With North American exploration and production going through a revival, I think investors should have some exposure to U.S. producers. My two top picks in this sector are:
EOG Resources (EOG, news, msgs) grew production by 14% in the third quarter. Most promising for the future: The company reported three new huge gas wells in the Barnett Shale formation. Wall Street projects that the company will be able to replace 175% of production -- without acquisitions -- in 2005. But for investors looking for a stock that will get the most bounce in any climb in gas prices, EOG Resources' biggest plus may be that much of its production for 2006 remains unhedged. Because the company hasn't locked in prices for any of its 2006 oil and gas (81% of production is natural gas), it will get the full upside (and downside) from any shift in natural-gas prices. Our StockScouter rates these shares a 6 out of a possible 10.
Chesapeake Energy (CHK, news, msgs) is one of the purest plays on natural gas, with natural gas accounting for about 89% of the company's reserves. The company has built a huge drilling inventory of unconventional gas assets in the last 12 to 18 months, largely using debt, which increases the company's leverage. That leverage increases the potential upside and downside in the stock. Fortunately, this company has one of the best managements in the business. Our StockScouter rates these shares a 10 out of a possible 10.
Editor's Note: A new Jubaks Journal is posted every Tuesday, Wednesday and Friday. Please note that Jubak's Picks recommendations are for a 12-to-18 month time horizon. See Jubak's CNBC Picks for shorter six month recommendations. For suggestions to help navigate the treacherous interest-rate environment see Jim's new portfolio Dividend stocks for income investors. For picks with a truly long-term perspective see Jubak's 50 best stocks in the world or Future Fantastic 50 Portfolio.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Chesapeake Energy. He doesn't own short positions in any stock mentioned in this column.
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