We recently published a list of 10 Best Natural Gas Stocks To Invest In According to Hedge Funds. In this article, we are going to take a look at where Chesapeake Energy Corporation (NASDAQ:CHK) stands against the other best natural gas stocks to invest in according to hedge funds.
The natural gas sector has experienced significant fluctuations in recent years, driven by a variety of geopolitical, economic, and environmental factors. As the global energy transition takes shape, natural gas remains a crucial player in the energy mix, offering a relatively cleaner alternative to coal and oil. This importance is reflected in its role in power generation, industrial activities, and heating, particularly in fast-growing markets across Asia and the Middle East. In this article, we explore the ten best natural gas stocks to invest in, based on insights from hedge funds. These stocks represent companies that are well-positioned to benefit from the evolving dynamics of the natural gas industry, including shifts in global supply and demand, the rise of liquefied natural gas (LNG), and increasing investments in cleaner, low-emission gases.
According to the World Bank’s 2024 Commodity Markets Outlook, natural gas prices rebounded significantly in mid-2024 after a steep decline earlier in the year, following a mild winter. U.S. prices surged by 80% compared to their average in March, while European prices saw a 25% increase. This recovery was driven by strong demand from Asia, particularly for LNG, as well as outages and supply disruptions in Europe. Despite this rebound, natural gas prices are expected to be lower in 2024 compared to the previous two years, reflecting a cooling in demand and ample supply. However, a recovery is anticipated in 2025 as markets stabilize and the demand for cleaner energy sources grows.
Natural gas demand has been relatively stable, with some regions, such as Asia-Pacific, seeing an uptick driven by industrial activity in China and India. Meanwhile, Europe’s demand has remained subdued, 22% lower than its 2005 peak. The World Bank expects global demand to grow by about 2% annually through 2024 and 2025, primarily fueled by emerging markets in China and the Middle East. However, advanced economies are projected to see flat or declining demand due to a shift towards renewable energy and increased energy efficiency. At the same time, global supplies have remained stable, with record-high U.S. production offsetting declines in Russia and Europe. LNG exports from the U.S., Qatar, and Africa are expected to continue expanding to meet growing demand, particularly in Asia.
The International Energy Agency (IEA) also highlights similar trends in its 2024 Gas Market Report. According to the IEA, global gas demand grew by 3% in the first half of 2024, surpassing the historical average growth rate of 2%. However, this recovery remains fragile, with supply constraints and geopolitical tensions contributing to price volatility. The IEA points out that Asia accounted for 60% of the demand growth, with China and India seeing over 10% year-on-year increases in gas consumption. This surge in demand was driven largely by industrial use, supported by economic expansion in the region. On the supply side, LNG production faced challenges in the second quarter of 2024, marking its first year-on-year contraction since the COVID-19 pandemic. This decline in output was attributed to feed gas supply issues and unexpected outages, leading to upward pressure on prices in key markets.
As we look ahead, the natural gas market is poised for a period of moderate growth, driven by demand in fast-growing economies and the expansion of LNG trade. Both the World Bank and the IEA agree that while global demand is set to increase, the market remains vulnerable to a range of risks, including geopolitical developments, supply disruptions, and the transition to cleaner energy sources. In this context, companies that can navigate these challenges and capitalize on opportunities in the LNG sector, as well as in low-emission gas technologies, are likely to emerge as strong investment candidates.
In the second half of 2024, natural gas demand growth is expected to slow, with the IEA forecasting a year-on-year increase of just under 2%. The decline in LNG production in the second quarter of 2024 has led to tighter supply-demand fundamentals, pushing up prices in key markets such as Asia and Europe. The U.S., which has been a major driver of global LNG exports, is expected to see further expansion in export capacity by the end of the year. The Freeport LNG expansion, the ramp-up of Plaquemines LNG, and the start-up of Corpus Christi Stage 3 are among the key projects set to come online, boosting U.S. export capacity. These developments will play a crucial role in meeting growing demand in Asia and offsetting supply shortfalls in other regions.
Despite the challenges facing the natural gas industry, there are several reasons for optimism. The continued expansion of LNG trade, particularly between the U.S. and Asia, presents significant growth opportunities for companies involved in the production, transportation, and distribution of natural gas. Additionally, the increasing focus on low-emission gases offers new avenues for growth, as governments and corporations alike seek to reduce their carbon footprints. According to the IEA, the supply of low-emission gases is expected to more than double by 2027, driven by policy support and investment in cleaner energy technologies. This trend is expected to benefit natural gas companies that are investing in technologies to reduce emissions and improve the sustainability of their operations.
In short, while the natural gas market faces several uncertainties, it remains a critical component of the global energy landscape. Companies that are well-positioned to navigate the complexities of supply and demand, expand their LNG operations, and invest in low-emission technologies are likely to perform well in the coming years. As investors look for opportunities in this space, the ten natural gas stocks highlighted in this article offer a compelling mix of growth potential, financial stability, and strategic positioning within the broader energy transition. Whether driven by rising LNG exports or the push for cleaner energy, these stocks represent some of the best investment opportunities in the natural gas sector today.
Our Methodology
For this article, we sifted through ETFs and online rankings to first compile a list of 20 natural gas stocks. Next, we selected the 10 stocks that were the most widely held by hedge funds, as of Q2 2024. The list is arranged in ascending order of the number of hedge fund holders in each firm.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of oil & gas drilling rigs in a an underground reservoir.
Chesapeake Energy Corporation (NASDAQ:CHK)
Number of Hedge Fund Holders: 42
Chesapeake Energy Corporation (NASDAQ:CHK) is a prominent player in the natural gas sector, making it a key inclusion in our list of the ten best natural gas stocks to invest in according to hedge funds. The company’s focus on acquiring, exploring, and developing natural gas properties across the U.S. has established it as a leader, with notable assets in the Marcellus Shale and Haynesville/Bossier Shales. Chesapeake Energy Corporation (NASDAQ:CHK) owns interests in approximately 5,000 natural gas wells as of December 31, 2023. Despite a decrease in hedge fund holders from 52 in Q1 2024 to 42 in Q2 2024, the company remains an attractive investment due to its strong fundamentals.
In its Q2 2024 earnings report, Chesapeake Energy Corporation (NASDAQ:CHK) demonstrated significant improvements in its operational efficiency, particularly in drilling performance. The company reported a 50% enhancement in its Marcellus drilling performance since 2022, achieved through a combination of increased drilling speed and longer lateral lengths, which grew by nearly 3,000 feet in Q2. This progress has enabled Chesapeake to reduce drilling costs by 20% over the last two years, highlighting the company’s focus on cost reduction and efficiency. In the Haynesville region, Chesapeake successfully cut saltwater disposal costs by 25%, thanks to optimized routes and strategic partnerships with vendors.
The company also reduced its full-year capital and production expenses by $50 million, which reflects a robust focus on lowering breakeven costs. This cost discipline ensures that Chesapeake Energy Corporation (NASDAQ:CHK) remains competitive in the natural gas market, especially as prices recover. Moreover, Chesapeake has built a production capacity of up to 1 billion cubic feet per day (Bcf/d), providing flexibility to scale production based on market conditions. The deferral of 46 turn-in-line (TIL) wells and the creation of 29 drilled but uncompleted (DUC) wells further demonstrates its commitment to maintaining flexibility.
Chesapeake Energy Corporation (NASDAQ:CHK) pending merger with Southwestern Energy is another positive development, expected to deliver synergies and enhance its competitive position. This merger is anticipated to close in late 2024, and the company is well-positioned to capitalize on rising natural gas demand in the future.
Overall CHK ranks 6th on our list of best natural gas stocks to invest in according to hedge funds. While we acknowledge the potential of CHK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CHK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.