Low-cost producer
Chesapeake Energy Corporation (NYSE:CHK) is another low-cost producer that is an excellent value play. Chesapeake Energy has had its share of problems, including scandals associated with the ex-CEO Aubrey McClendon and difficulties obtaining funding. However, Chesapeake Energy appears to have turned the corner by naming a new CEO and selling about $3.6 billion of non-core assets. The company is the second-largest producer of national gas with excellent shale properties in the Barnett, Haynesville, and Marcellus regions.
Net income is expected to grow by 282% in 2013 and EBITDA is expected to grow by more than 30% year-over-year. With a forward PE of only 10.3 and a price-to-book of only about 1.1, Chesapeake Energy Corporation (NYSE:CHK) is positioned to take full advantage of any increase in natural-gas prices.
Outstanding shale access
Rosetta Resources Inc. (NASDAQ:ROSE) is a mid-sized company with some outstanding shale properties in Texas, especially the Eagle Ford region. It has the third-lowest price of natural-gas production (behind Ultra Petroleum Corp. (NYSE:UPL) and Chesapeake Energy Corporation (NYSE:CHK)). Projections are for double-digit growth in year-over-year production and reserves. Cash flow is also expected to increase by over 30% from 2012. Overall, Rosetta Resources has a rock solid balance sheet and with a forward PE of less than 10, it is one of the best value plays.
A Foolish question
If gas is so abundant in the U.S., why don’t we export the excess? The answer: Government regulations. Currently, natural gas can be exported only to countries that have free-trade agreements with the U.S., unless special permission is obtained from the Department of Energy. However, laws are pending in Congress to expand exports to our NATO allies. Over the next few years, I predict that the U.S. will become a large exporter of natural gas, driving down supply in the U.S. and causing prices to rise.
Foolish bottom line
Natural gas is at the beginning of a long-term bull market as more industries switch to this abundant source of energy. The energy market is volatile but, if you can tolerate the ups and downs, investments in low-cost natural-gas producers will almost surely reward the patient investor.
The article 3 Natural Gas Stocks to Buy Now! originally appeared on Fool.com and is written by John Dowdee.
John Dowdee owns shares of Chesapeake Energy, Ultra Petroleum, and Rosetta Resources. The Motley Fool recommends Ultra Petroleum. The Motley Fool owns shares of Ultra Petroleum and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, Short Jan 2014 $15 Puts on Chesapeake Energy, Long Jan 2014 $30 Calls on Ultra Petroleum, Long Jan 2014 $40 Calls on Ultra Petroleum, and Long Jan 2014 $50 Calls on Ultra Petroleum. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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