The 5 Best Stocks to Invest in Natural Gas for 2014
For investors looking to cash in on the natural gas boom in 2014, there are a number of ways to invest. One of the best plays is natural gas stocks.
Chesapeake Energy, (NYSE:CHK) – Chesapeake is the second-largest holder of natural gas reserves in the U.S. and is a potential takeover target, but strong financials and strategy will keep it independent for a while longer. The company’s share has nearly doubled over the past year and a half and is a current trend favorite among hedge funds and traders. While this is often a telltale sign that the company could stall, the long term play is there due to undervalued assets and plenty of room to grow. Keep in mind that all commodity driven stocks involve a degree of volatility to gain a decent position.
Westport Innovations, (NASDAQ:WPRT) – Westport makes natural gas engines for heavy vehicles. Due to a speculative rise a few years ago and a significant drop due to slow business development, Westport is a solid investment for 2014. The company has more cash than outstanding debt and insiders own a substantial portion of the company, both reassuring signs. Shares are emerging from the depths and investors could make an aggressive play based on valuation and outlook for growth as more heavy vehicles more to natural gas.
CF Industries Holdings, (NYSE: CF) – Cheaper natural gas is a solid move for heavy users like nitrogen producers. CF has received a huge bump from natural gas over the past five years. Its stock is up almost 400% and its dividend was recently amped up by 150%. The company is investing heavily to broaden its capacity to take advantage of cheap natural gas to rule our food creating profits for CF and American farmers since they’ll be buying cheaper American-made nitrogen for their crops.
Clean Energy Fuels Corp., (NASDAQ: CLNE) – Consumption of natural gas will boom in 2014 and investors looking for natural gas stocks to fuel our economy should consider Clean Energy Fuels Corp. Like Wesport Innovations, more trucking companies are making the switch from expensive, dirty diesel rule to cheaper, cleaner natural gas. Clean Energy Fuels is embarking on America’s Natural Gas Highway in efforts to build the infrastructure necessary to make the switch from diesel easier for the country’s trucking fleets. Customers ordered 70 percent more natural gas vehicles in the first nine months of 2013 than they did in 2012, and that trend doesn’t appear to be slowing down.
Cheniere Energy,(NYSE MKT: LNG) – Cheniere is one of several natural gas stocks working to get more American natural gas into global markets. Increasing U.S. exports is a trend that will continue and Cheniere is presently building two LNG export facilities along the Gulf Coast. Investors looking for solid pure plays on the natural gas export boom should take note.
There are many options for investors looking to play the consumption side of natural gas as well as the production. The need to continually generate tax revenue, more jobs, find alternatives for coal and oil (and independence from OPEC) make natural gas investing one of the safest bets in the investing world today. Consider your risk comfort level and how aggressive you want to get before getting started, then find companies, a couple ETFs and you’re well on your way.
UBS: Economy Still Facing Deep Risks
Economists at UBS warn that even after an uptick in economic activity in May and June, the pace of recovery slowed in July as consumers, workers and businesses remain cautious.
The economists believe that the unemployment rate will be hovering around 10% by the end of the year. However, they do expect a strong jobs recovery next year as the country wins the battle against the pandemic. They expect the country’s GDP to rise 5% in 2021 as the economy slowly returns to normal.
The Basis of Models
UBS’ chief US economist Seth Carpenter added that the models that UBS is basing their GDP projections on don’t factor in a large increase in new infections. This is something that could add another hurdle to the recovery. Alan Detmeister, a UBS economist, believes that the recovery is less about the number of cases. Instead, it’s more about the level of restrictions in place.
“The risks are deep,” said Carpenter during an interview with MarketWatch. He points to three challenges facing the economy as it tries to recover. These three include overall job growth is now slowing, incomes are falling, and both households and businesses are hesitant to make long-term plans.
When it comes to job growth, UBS economists are focused on what he calls “labor-market scarring,” according to Carpenter. He’s worried that the next 6 to 12 months could exhibit a “prolonged dislocation in the labor market,” and added, “What’s going to drive this is how fast people get their jobs back.”
The group also noted that except for the automotive sector, manufacturing jobs saw a drop in growth during July. The labor-force participation rate also slipped in July after gaining ground in May and June. “And within the employed, a large share remained either part-time for economic reasons or employed but not at work,” they noted.
Income Drops to Slow Recovery
Falling incomes will also slow any economic recovery. The bank warns that household incomes will drop 10% at an annual rate. This is due to the expiration of enhanced unemployment benefits and at least thus far, no additional stimulus checks. Even with an extension of unemployment benefits or another stimulus check, the economists say it won’t make up for the massive financial relief that was “the lifeblood to prevent the economy from tanking” from March through July.
This drop in incomes is putting further strain on the retail sector. Bankruptcies are piling up, most recently with Stein Mart announcing it would enter bankruptcy and will likely close most, if not all, of its 300 stores.
Neil Saunders, managing director at GlobalData Retail, notes that Stein Mart is just the latest retailer to go under. He’s also sure that won’t be the last. “The failure of Stein Mart is not only the latest in a long line of retail bankruptcies, it also underlines that even traditionally robust segments like off-price are not immune from pandemic-induced disruption.”
He added, “For a company that, at the start of this year, was in the process of selling itself to a private investment firm, the bankruptcy is an abrupt change in fortunes that shows the immense damage the pandemic has inflicted on retail.”
Wall Street Insider: The Smart Money Is In Cash, Ready To Buy During A Correction
49% of Americans said they expect to live paycheck to paycheck each month. Additionally, 53% said they don’t have money worth at least three months of expenses saved in an emergency fund.
Those figures are from earlier this year before the pandemic began. Also, as you can imagine, these would be much worse today as the economic fallout from the coronavirus spreads into its fifth month.
Michelle Connell, the founder and president of Portia Capital Management, says the numbers show how weak the US consumer was even before the pandemic, so the prospects of a “v-shaped” recovery are “grim.”
“When the U.S. economic shutdown began in March, we were told to expect a “V- shaped” recovery. The consumer and the economy were originally expected to be fully recovered by the end of 2020 at the latest. Now the grim realities are starting to show,” says Connell.
The Rally and Tech Stocks
She points out that the stock market rally has been concentrated in just a few tech stocks. She also says that essentially every other stock that isn’t a tech stock hasn’t participated in the rally.
Since the S&P 500’s March drawdown of almost 35%, the index has almost retraced the year’s high and is currently 4% up for the year to date. But further analysis finds that only a handful of technology stocks have led this rally,” says Connell. She added that “Investors have focused on the companies that support “shut-in” consumers and workers.
The result has been that the top 10 names in the S&P 500 now comprise more than 27% of the index’s market weight and large-cap growth stocks have returned 20% year-to-date. To a large degree, the other 490 names and other investment styles have not participated. For instance, large to small “value” names are still down between 10%-to-16%% year-to-date.”
She says retail investors overtaken with “boredom” have piled into the markets. She also mentions that they “poured fuel on the government’s fiscal and monetary fire.”
Smart Money in Cash
So what should smart investors be doing right now?
The best idea, according to Connell, is to watch what professional money managers do in their own accounts, not what they are doing in their managed accounts.
And right now, they are in cash.
“You can always determine an institutional money manager’s real opinion on valuations when you ask them what they’re doing with their own money. Currently, many institutions are sitting on cash positions as large as 20% to 25% in their personal accounts.”
She adds, “If you’re sitting in cash, don’t feel dumb. History is on your side — and you are also in good company. Interestingly, over the past 30 years there has been a strong inverse relationship between the unemployment rate and the performance of the S&P 500. This relationship has been upended only over the past five months. Obviously, the $2.44 trillion of fiscal stimulus that has been pumped into the U.S. economy has created an artificial market environment. At some point, this inverse relationship will represent itself and the stock market will correct.”
She says to prepare for the correction by putting together a list of stocks to pick up at bargain prices.
“Be ready for pullbacks in the stock market and dislocations in private markets. And make a shopping list.”
Gold And Silver Plunge On Vaccine Hopes, Slowdown In New Cases
Gold prices fell more than $118 per ounce yesterday. It’s the largest one-day dollar loss in more than seven years as hope for a coronavirus vaccine. Additionally, a slowdown in new cases pushed stocks and Treasury yields higher.
Edward Moya, senior market analyst at Oanda, said a report that Russia has developed a coronavirus vaccine had an effect. It served as everything traders needed to lock-in their profits from the recent surge in prices.
The Vaccine and Precious Metals
“Traders who were looking for an excuse to lock-in profits with their bullish gold bets jumped all over Russia’s vaccine news. It didn’t matter that this was somewhat telegraphed,” said Moya. He also said that Russians only starting Phase 3 didn’t matter.
Silver also fell $4.38 per ounce, it’s largest dollar loss on a daily basis since Sept. 23, 2011.
Brien Lundin, editor of Gold Newsletter, went on an interview with MarketWatch. There, he said many investors were actually hoping for a small correction. They wanted one so that they could get into gold and silver before the next leg higher.
“Gold and silver’s run over the past couple of weeks was dizzying in its trajectory and just about everyone marveling at that rise was expecting, and even hoping for, a correction. Well, it’s here, and the metals are simply releasing a bit of the air that had overinflated the market,” said Lundin.
“There was tremendous anecdotal evidence that a great swath of investors had bought into the long-term story for gold and silver and were simply waiting for a pull-back to get in,” he added. “I would expect there’s some reality to this view, and that we’ll see a big influx of investment once it appears that gold has bottomed.”
Reasons for the Climb
Bart Melek, head of global strategy at TD Securities said the recent climb was due to a number of reasons. This includes a falling dollar, lower interest rates, and higher inflation. When the US dollar went against expectations and actually showed strength, precious metals investors quickly headed for the exit.
“The precious metals complex, which posted a spectacular performance over the summer, was driven by a drop in rates, a steady increase in inflation expectations and a falling USD,” said Melek. “The rally is now giving up some of these gains as these drivers lose momentum. Real rates are now rising along with nominal yields due to stimulus optimism and risk appetite, with the USD also off its lows.”
Melek also believes that gold and silver dropped as some investors booked profits. Also, what he says are expectations of an economic recovery due to more stimulus money.
“Specs and CTAs are reducing their gold and silver exposure,” Melek said. This happened “as volatility trends higher and as they take profits out of a crowded trade. The rapid rate of ETF gold and silver purchases, which have been a key driver for the summer rally, are also losing momentum,” he added. The “U.S. economy will continue to positively respond to an additional trillion dollars worth of fiscal stimulus and continued Fed measures,” Melek also mentioned. Given this, “it is quite likely that rates and the dollar may see some better days into 2020.”
Melek adds that the dip in prices is a buying opportunity.
“Correction represents a second chance to get on the gold, silver bandwagon.”
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