Since the middle of September, natural gas prices have been in a very strong uptrend. Aided by an unusually hot summer, natural gas inventories fell back in line with the five year average. Additionally, the latest rig reports warn of a potential shortage, as we have not seen this rig count level since 1999. Last year we saw the rig count come in at 936, this year we are currently at 422. If the number of rigs continues to decline, we should continue to see a steady rise in natural gas.
I believe natural gas will be a great investment for the rest of 2012 and beyond. Currently, we are seeing support for higher prices from the lower rig count and a potentially cold winter. However, I do think we could see a minor pullback in the short term before the run up in winter.
There are a number of ways to play natural gas but let’s look atChesapeake Energy (CHK). While the company had a rocky start to the year, it seems it has revived along with the price of natural gas. Currently, Chesapeake is trading at a market cap of $14 billion and offers a yield of 1.7%. Furthermore, the company has a price to earnings ratio of 7, PEG of 0.93, price to book of 0.78 and a price to sales of 1.09. These valuation ratios outpace other viable competitors such as Apache (APA), SandRidge Energy (SD), EOG Resources (EOG) and Devon Energy (DVN). However, much like Chesapeake, these companies will receive a boost from an uptrending natural gas. To continue reading, click here.