Energy stocks have their ups and downs, just like every other sector. It’s a complicated business with a lot of different players, but there’s certainly money to be made. Here’s what you need to know about investing in natural gas.
Investing In Natural Gas Stocks
Natural gas is formed deep in the earth and contains methane, natural gas liquids and nonhydrocarbon gases. Like oil, natural gas needs to be extracted from the ground, processed and transported to homes and businesses where it is used to heat and cool.
The companies that provide natural gas are divided into three categories. Upstream companies, otherwise known as exploration and production companies, find the gas and get it out of the ground. Midstream companies process the gas and move it from the well to the downstream companies, which distribute it to consumers.
If you’re wondering how you can invest in natural gas, you have a lot of options. You can choose from companies in different parts of the process — upstream, midstream or downstream. Or you can choose based on the type of stock — value, growth or momentum.
Here are some natural gas stocks to consider.
Best Value Natural Gas Stocks
If you’re looking for value stocks — those that produce income for investors in the form of a dividend — there are a few in the natural gas industry. Here are three to consider.
DCP Midstream LP
- Stock price as of Oct. 18: $39
- Market cap: $8.13 billion
DCP Midstream LP (DCP) produces and markets natural gas liquids and processes natural gas. As a midstream company, it doesn’t explore or produce natural gas; rather, it transports, stores and markets it. DCP Midstream LLC, which owns DCP Midstream LP, is a joint venture between Phillips 66 and Enbridge.
DCP Midstream has an annual dividend yield of 4.46%, making it a good choice for those looking for income.
- Stock price as of Oct. 18: $50.05
- Market cap: $12.73 billion
Ovintiv Inc. (OVV) produces natural gas, natural gas liquids, oil and condensate. The company touts its commitment to generating free cash flow and returning money to shareholders. In September 2021, Ovintiv announced a buyback of up to 26 million shares. In September of this year, the company announced in a press release that it had received regulatory approval for the renewal of the buyback program.
It also has a dividend yield of 1.99%. According to Yahoo Finance, Ovintiv has an average analyst rating of 2 out of 5, which is a “buy.”
Coterra Energy Inc.
- Stock price as of Oct. 18: $29.44
- Market cap: $23.42 billion
Coterra Energy Inc. (CTRA) is an upstream oil and gas company that was created by the merger of Cabot Oil & Gas and Cimarex Energy. It currently has projects in the Permian Basin in West Texas and southeast New Mexico, Marcellus Shale in northeast Pennsylvania and Anadarko Basin in western Oklahoma.
Coterra Energy stock closed at $29.44 on Oct. 18 but has a one-year average target estimate of $36.91. Its dividend yield is 9.15%.
Best Growth Natural Gas Stocks
Growth stocks are those that tend to make money for investors because they appreciate in price over time, compared to value stocks that generate income. When looking at growth stocks, you want to choose those that will grow faster than the overall economy. Here are some natural gas growth stocks to consider.
- Stock price as of Oct. 18: $41.81
- Market cap: $15.11 billion
EQT Corp. (EQT) is the largest producer of natural gas in the United States. The company is focused on replacing international coal with domestic natural gas in order to address climate change.
EQT closed at $41.81 on Oct. 18 and has a one-year target estimate of $64.11 per share, which is a slight increase since September.
Southwestern Energy Co.
- Stock price as of Oct. 18: $6.74
- Market cap: $7.38 billion
Southwestern Energy Co. (SWN) is a natural gas exploration and production company. The company focuses on developing natural gas and natural gas liquids in Pennsylvania, Ohio, West Virginia and Louisiana. It also transports oil, natural gas and natural gas liquids.
SWN closed at $6.74 per share on Oct. 18, and its low price makes it a bit risky. Most analysts — 22 out of 33 — recommend holding the stock, but nine of them call it a “buy” or a “strong buy.”
- Stock price as of Oct. 18: $2.72
- Market cap: $1.51 billion
Tellurian Inc. (TELL) is an upstream natural gas company with almost 100 drillable locations and, it estimates, 1 trillion cubic feet of net natural gas resource.
The stock closed at $2.72 per share on Oct. 18, making it inherently risky due to its low price. But analysts seem to like it, giving it a consensus recommendation of 2.5 on a scale of 1 — “strong buy” — to 5 — “sell”.
Best Momentum Natural Gas Stocks
Momentum stocks are those that are going on an upward trajectory and are expected to continue to do so. These stocks are doing well, and that should continue.
Antero Resources Corp.
- Stock price as of Oct. 18: $35.80
- Market cap: $11 billion
Antero Resources Corp. (AR) is an exploration and production company for natural gas, natural gas liquids and oil in the Appalachian Basin. It provides midstream services through Antero Midstream.
The stock closed at $35.80 on Oct. 18, well above its 52-week low of $15.38, and it has a one-year target estimate of $50.64.
- Stock price as of Oct. 18: $32.54
- Market cap: $4.32 billion
Noble Corp. (NE) is one of the world’s largest offshore drilling contractors. Although it’s trading closer to its 52-week high than its 52-week low, analysts give it a “strong buy” rating.
They predict it’ll rise from its most recent closing price of $32.54 on Oct. 18 to $49 within the next year.
Kinder Morgan Inc.
- Stock price as of Oct. 18: $17.77
- Market cap: $40.56 billion
Kinder Morgan Inc. (KMI) is one of the largest U.S. energy infrastructure companies, with pipelines that transport natural gas, crude oil, gasoline and carbon dioxide. Its terminals store renewable fuels, chemicals, petroleum and other products.
Out of 19 analysts following the company in October, five rated it a “strong buy” and six rated it a “buy.” Eight recommend holding the stock. On Sept. 8, Goldman Sachs upgraded its recommendation from “sell” to “neutral.”
Kimbell Royalty Partners LP
- Stock price as of Oct. 18: $18.42
- Market cap: $1.36 billion
Kimbell Royalty Partners (KRP) is an exploration and production company, but rather than perform those functions itself, it buys and holds royalty interests in U.S. oil and natural gas properties.
The stock pays a dividend yield of 12.08%. Just four analysts watch the stock, but they rate it a 1.6, which is a “strong buy,” and predict a target price of $24.17 — 31% above its closing price of $18.42 on Oct. 18.
What Is the Best Natural Gas Stock To Invest In?
If you’re looking for the single best position in the natural gas industry, well, it may not be a natural gas stock at all. The First Trust Natural Gas ETF (FCG) is a natural gas exchange-traded fund that tracks the ISE-Revere Natural Gas Index. Investors in this fund own a little bit of 51 different stocks, 98.95% of which are energy stocks, according to Yahoo Finance. So if you want to participate in the natural gas industry but don’t want to have to decide on a single stock, this might be worth a look.
Whether you choose a specific natural gas stock — or two, or three — or decide to invest in an ETF, adding natural gas positions to your portfolio could be a wise move.
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Oct. 18, 2022, and is subject to change. Information on analyst ratings was sourced from Yahoo Finance.