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These 3 Natural Gas Stocks are on the Rise
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These 3 Natural Gas Stocks are on the Rise

Natural gas has long been used for cooking, heating, and electricity production. In recent years, the demand for natural gas in power plants has been growing as it is used as a replacement for coal.

According to the U.S. Department of Energy estimates, natural gas is also being adopted as an automobile fuel. More than 175,000 vehicles in the U.S. and about 23 million vehicles globally run on natural gas. Compared to conventional gasoline and diesel fuels for vehicles, natural gas is a lesser polluting.

The use of natural gas in industrial applications is also increasing in the form of feedstock to produce a variety of chemicals, fertilizers, and hydrogen.

The demand for natural gas has continued to grow. For example, extreme weather conditions are driving its use in heating and cooling. The power sector’s consumption and expanding industrial applications are also driving demand. 

Natural gas supply has been slow to match demand, resulting in soaring prices. According to the U.S. Energy Information Administration figures, the country’s natural gas stockpiles in underground storage facilities recently dropped 24% below the year-ago level and 18% below the five-year average.

The tight supply has been exacerbated by sanctions on Russia, which is a major producer of the gas. To punish Russia for invading Ukraine, Europe is cutting its dependence on Russian energy supplies and turning to North American suppliers for natural gas and other fuels.

Investing in Natural Gas Stocks

The current scenario seems to be a good time to invest in natural gas stocks as the business is booming and there is more potential for growth considering the broad-based demand drivers. 

Strong domestic and overseas demand recently saw U.S. natural gas prices break above $8 for the first time since 2008. For natural gas producers, the business can be more profitable, especially when prices are on the rise. Southwestern Energy (SWN), Range Resources Corp (RRC), and Vermilion Energy (VET) have emerged as investors’ favorite natural gas stocks.

Southwestern Energy (SWN)

Texas-based Southwestern Energy produces natural gas and other energy products. Its operations are focused on Pennsylvania, West Virginia, and Ohio. The company has a returns-driven strategy that it says leverages scale, operational execution, and financial strength to generate sustainable value for stakeholders.

Following the acquisitions of Indigo Natural Resources and GEP Haynesville in 2021, Southwestern Energy became the second-largest natural gas-focused producer in the U.S. 

Net income jumped to $2.4 billion in Q4 2021, compared to a $92 million loss in the same quarter the previous year. In 2022, Southwestern Energy plans to continue its disciplined investment strategy and optimize free cash flow. SWN stock has gained more than 80% year-to-date.

Analysts on the Street have issued a Hold consensus rating on SWN, based on four Buys, five Holds, two Sells. The average Southwestern Energy price target of $8.02 implies 5.4% downside potential from current levels.

Range Resources Corp (RRC)

Range Resources is a Texas-based leading natural gas producer primarily focused on the Marcellus Shale in Pennsylvania. In a capacity expansion move, Range Resources has agreed to acquire fellow Canadian oil and gas company Leucrotta for $477 million.

Range Resources reported a 162% year-over-year increase in revenue to $1.57 billion. Net income soared to $891.4 million, from $38.4 million in the same quarter the previous year. 

Range Resources reduced its net debt by $379 million in 2021. The company’s board recently reinstated dividends and authorized a $500 million share repurchase program. RRC stock has gained 85% year-to-date. 

Wall Street has a Moderate Buy consensus rating for RRC stock, based on five Buys, six Holds, and one Sell. At the time of writing, the average Range Resources price target was $33.17, which implies 2.3% downside potential from current levels.

Vermilion Energy (VET)

Canada-based Vermilion Energy is a multinational oil and gas company with operations in North America, Europe, and Australia. The company reported a rise in revenue to $765.9 million in Q42021 up from $316.2 million for the same quarter last year. Net income jumped to $345 million from $57.7 million in the same quarter the previous year. 

Vermilion Energy reduced its net debt by $365 million in 2021. The company pays dividends, with a distribution of $0.06 per share on April 18. VET stock has gained 79% year-to-date.

Wall Street has a Moderate Buy consensus rating for VET stock, based on four Buys and five Holds. At the time of writing, the average Vermilion Energy price target was $27.02, which implies 17.08% upside potential to current levels.

Concluding Thoughts

The record-high natural gas prices may not hold for long as many producers will respond by increasing the supply. However, the strong demand across the various sectors should keep prices high enough for major producers with economies of scale to enjoy a good profit.

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