Over the past six months, energy prices have taken a dramatic fall. The price of oil traded as low as $42, nearly half of its value just last November. And natural gas dropped by almost 40%.
As such, stocks with high exposure to these key commodities, particularly producers, have been hammered.
But oil is on the rebound now, giving oil stocks a big bounce. And natural gas, looks like it might be next. So which stocks are best positioned to win from a bounce in natural gas?
First, there are a few interesting things to consider when speculating on a bounce in natural gas.
Natural gas currently trades just around $2.50. If we look back on the long term chart of natural gas, the time spent under $2.50 has historically been limited. Over the past 15-years, each of the four times the commodity spent time below $2.50, it followed with a rebound back above $6.
Also, with coal still representing the majority of fuel used to generate electricity, there are forthcoming new Environmental Protection Agency rules that will force power companies to switch from coal to natural gas as early as this summer, creating instant demand for natural gas.
Finally, perhaps the greatest energy trader of all-time, and self-made billionaire T. Boone Pickens, has recently said he thinks we will see $6 natural gas again.
If he’s right, and natural gas bounces back to levels last seen just over a year ago, many small and mid-cap natural gas stocks are in position to triple, by returning to levels these stocks traded when natural gas was last $6.
Below are five stocks that could triple if Pickens is right about natural gas:
1) Exco Resouces (XCO) – Billionaires Wilbur Ross, Howard Marks and Prem Watsa own more than 40% of this stock. When natural gas was last $6, XCO was trading at $6 or 215% higher than current levels.
2) SandRidge Energy (SD)- Billionaire hedge fund managers, Leon Cooperman and Prem Watsa own almost 17% of SandRidge. This stock traded above around $7 in April of 2014, when natural gas was $6. That’s 266% higher than its current share price today.
3) Stone Energy (SGY) – SGY was around $40, or 150% higher than current levels, last time natural gas was $6.
4) Halcyon Resources (HK) – If natural gas prices go back to $6, HK should be worth almost $4.50 a share. That’s a triple from its current price of $1.44.
5) Chesapeake Energy (CHK) – Billionaire Carl Icahn owns nearly 20% of Chesapeake, after buying more of the stock last month, when the stock dipped to $13 a share. Chesapeake is one of the biggest natural gas producers in the United States and therefore the purest play of any stock on rising natural gas prices. Chesapeake also has over $4 billion in cash, after selling assets late last year. Chesapeake could double on natural gas prices returning to $6.
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