Baker Hughes Incorporated (BHI), Chesapeake Energy Corporation (CHK), Range Resources Corp. (RRC): As Natural Gas Inventories Plunge, Investors Should Buy Exploration Stocks

Stock Performance

The stock performance of the sector has been horrendous over the last two years. The group has greatly underperformed the market with Chesapeake Energy Corporation (NYSE:CHK) down 31%. Range Resources Corp. (NYSE:RRC) had a decent 13% gain, but that too is only half that of the market.

CHK data by YCharts

Bottom line

The combination of natural gas inventories plunging to below average levels and decade lows in rigs directed at natural gas drilling sets up the perfect storm for a rebound in demand for natural gas exploration and production stocks.

The above natural gas stocks have vastly underperformed the market. While the stocks outside of Chesapeake don’t provide the same snap back potential as the coal stocks, each has the potential to generate solid gains over the next few years as pricing rebounds. Investors can probably generate higher returns in Chesapeake Energy Corporation (NYSE:CHK) with the huge leverage on the balance sheet, while a more conservative Southwestern Energy Company (NYSE:SWN) might produce smaller gains. Also, investing in Range Resources Corp. (NYSE:RRC) over WPX Energy suggests the Marcellus shale will outperform the Niobrara and Piceance Basin areas focused on by WPX.

Either way an investor chooses, the sector is likely to revert back to the mean as natural gas prices rise.

The article As Natural Gas Inventories Plunge, Investors Should Buy Exploration Stocks originally appeared on Fool.com.

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