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 EQT Corporation (NYSE:EQT) 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).
A storage facility for natural gas, showing the vast reserves of this abundant energy source.
EQT Corporation (NYSE:EQT)
Number of Hedge Fund Holders: 45
EQT Corporation (NYSE:EQT) is a leading natural gas production company in the United States, well-positioned in the Appalachian Basin. With its recent acquisition of Equitrans Midstream, EQT Corporation (NYSE:EQT) has transformed into a vertically integrated natural gas business, controlling substantial natural gas assets. As of Q2 2024, EQT was held by 45 hedge funds, up from 41 in the previous quarter, demonstrating strong institutional interest.
EQT Corporation (NYSE:EQT) acquisition of Equitrans Midstream is a key strategic move, giving the company control over nearly 2 million acres of leasehold and production of over 6 billion cubic feet equivalent (Bcfe) per day. This acquisition significantly enhances EQT Corporation (NYSE:EQT) ability to deliver low-cost, high-volume natural gas, making it a top candidate for investors seeking exposure to the natural gas sector. With over 2,000 miles of gathering lines, 43 Bcfe of natural gas storage, and a newly commissioned 300-mile Mountain Valley Pipeline (MVP), EQT Corporation (NYSE:EQT) is well-positioned to meet growing U.S. and global demand for natural gas. The integration of these assets is expected to save the company around $150 million, and early synergy gains suggest further upside potential.
Operationally, EQT Corporation (NYSE:EQT) continues to outperform. In Q2 2024, the company set records in drilling efficiency, reducing well costs by 14% and achieving significant gains in completed footage per day, which is expected to lead to future capital efficiency improvements. The company’s focus on reducing system pressures via compression has also shown strong results, boosting well production by 50% in key projects.
Financially, EQT Corporation (NYSE:EQT) cost structure is a major strength. The company’s unlevered free cash flow breakeven price is projected at $2 per million BTU, making it highly competitive in the natural gas industry. Additionally, EQT reduced its net debt to $4.9 billion in Q2 2024, down from $5.7 billion at the end of 2023, thanks to operational efficiencies and strategic deleveraging efforts. Overall, EQT Corporation (NYSE:EQT) combination of scale, low-cost structure, and improving operational efficiency makes it one of the best natural gas stocks to invest in, offering a strong risk-adjusted return potential.
Legacy Ridge Capital Management stated the following regarding EQT Corporation (NYSE:EQT) in its Q2 2024 investor letter:
“In addition to Vistra’s performance compelling us to reorder the top of the portfolio, two other positions had news warranting brief updates: Summit Midstream Partners (SMLP) continues restructuring the business and balance sheet, and Equitrans Midstream (ETRN) is getting acquired by EQT Corporation (NYSE:EQT).
Lastly, we wrote about Equitrans Midstream (ETRN) in the 2023 mid-year letter, primarily discussing that company’s long and expensive journey completing the Mountain Valley Pipeline and the short-term opportunity we took advantage of. After all the hand wringing and stress with respect to that one project the whole business will end up right where it started, as part of EQT Corp. (EQT). In March, EQT announced they are acquiring each ETRN share for .3504 EQT shares. The transaction should close within the next several weeks.
EQT is the top natural gas producer in the United States with a dominant position in the Appalachian Basin and will become one of the lowest cost gas producers in the US, if not the lowest, after consummating this merger. Our fund is going to exchange the ETRN shares and become EQT owners. The investment checks important boxes for us: 1) a disciplined management team focused on tangible value creation; 2) an ability to generate significant FCF that gets returned to shareholders; 3) exposure to a commodity with strong secular demand trends, which gives us a call-option on higher prices. At only 5% of our assets it will start as a small position for us, but with natural gas prices volatile and back in the low-$2’s we should have ample opportunity to exploit the volatility over time and hopefully make it bigger.”
Overall EQT ranks 4th on our list of best natural gas stocks to invest in according to hedge funds. While we acknowledge the potential of EQT 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 EQT 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.
