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Natural gas stocks have experienced their fair share of volatility over the past few weeks due to the geopolitical drama playing out in Russia. As a result, some investors are giving pause over whether these stocks belong in their portfolios.
But one subsector of natural gas stocks looks different from the rest. U.S. natural gas stocks related to the Marcellus Shale Coalition are poised to weather market volatility better than others.
"Technological advancements since the early 2000s have allowed U.S. natural gas producers to reshape the industry largely through the development of the Marcellus," wrote Moody's analyst Michael Sabella in a March 3 report. "The Marcellus has emerged as one of the most profitable regions in the U.S. for producing natural gas, so even if prices return to the weak levels of 2012, [natural gas stocks] will be rewarded."
While other natural gas stocks will be affected by overseas conflicts like the one in Russia, now is a better time than ever to invest in U.S. natural gas stocks like Chesapeake Energy, Antero Resources, and others in the Marcellus Shale Coalition.
What is the Marcellus Shale Coalition?
The Marcellus Shale, located in eastern U.S., is estimated to have between 30 and 75 years' worth of natural gas reserves, companies operating there stand to make decades worth of profits.
The Marcellus Shale Coalition is a group of energy companies who share common methods and practices in the exploration and drilling of natural gas along the Marcellus Shale region. The coalition is comprised of 40 companies that maintain a full membership and an additional 100 companies have associate memberships due to ancillary ties to the industry.
Note:The Fed's 2014 taper means volatility ahead. So we've outlined how to find profits in a volatile market – like triple-digit gains in just days – if you start with this strategy…
Here we highlight two U.S. natural gas stocks from the coalition that have the potential to weather market volatility – and reward investors…
U.S. Natural Gas Stock Pick #1: Chesapeake Energy Corp. (NYSE: CHK)
Rated as the #1 company in the Marcellus Shale Coalition last year, Chesapeake has since encountered more than a few bumps in the road. One such bump occurred within the past year, when the U.S. federal government filed an antitrust lawsuit against Chesapeake and Encana Corp. (NYSE: ECA), rival companies in the natural gas industry.
In addition to the lawsuit, Chesapeake encountered a financial challenge as its gas field in Oklahoma, known as the Sahara, is lagging in production to the extent that it may adversely affect fuel sales that are pledged against $880 million in debt.
These factors have contributed to the drop in CHK stock price over the past few weeks. However, it appears that stock prices are beginning to stabilize, due in part to management restructuring and the pro-active tackling of these issues.
When it comes to Cheasapeake, what goes down will eventually go up, making the company a great U.S. natural gas stock to nab at a discount.
CHK stock was trading at $26.13 per share on Tuesday. It has a 52-week range of $18.21-$29.06.
U.S. Natural Gas Stock Pick #2: Antero Resources Corp. (NYSE: AR)
Antero Resources went public in October 2013. Since its IPO, AR has grown from $44.00 per share to more than $60 per share.
The company's success stems from its strategic land holdings that contain high-producing wells. It expects production to grow 60% to 65% this year and 30% to 50% through 2016.
Antero is also making a name for itself as an innovator in distribution. Management has stated that the company has a solid inventory of well locations that can be drilled out at a substantial profit due to the low costs projected in drilling the sites.
AR stock was trading at about $64.47 on Tuesday and does not yet pay a dividend.
The U.S. love/hate relationship with fuel prices will likely continue into the foreseeable future. However, the one constant is that energy is a commodity that will remain in demand for many years to come. Choosing U.S. natural gas stocks such as Chesapeake Energy or Antero Resources is a good option, whether for hedging, diversity, or just as a profitable means to support this growing industry.
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