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Natural Gas Rose: Are Gas-Weighted Stocks Capitalizing on It?

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Natural gas–weighted stocks and natural gas

In the previous part, we discussed the rise in natural gas prices on November 21 due to cooler weather. Between November 14 and November 21, 2016, the natural gas futures contracts for December delivery rose 7.3%. An equally weighted basket of natural gas–weighted stocks rose 6.1% for the same period. These stocks operate with a production mix of at least 60% in natural gas (UNG) (BOIL) (UGAZ) (FCG) (GASL). They’re also part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

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Best and worst natural gas stocks

Below are the returns for the best-performing and worst-performing stocks from our basket of natural gas–weighted stocks from November 14 to November 21, 2016. Natural gas–weighted stocks that outperformed their peers during this period included:

  • Chesapeake Energy (CHK) – 12.5%
  • Rice Energy (RICE) – 8.6%
  • WPX Energy (WPX) – 8.3%

Natural gas–weighted stocks that underperformed their peers during this period were:

  • Cabot Oil & Gas (COG) – 3.3%
  • EQT (EQT) – 3.1%
  • Antero Resources (AR) – 0.7%

In the previous part of this series, we saw how natural gas impacted these stocks. Apart from their earnings in the long term, the performance of these natural gas–weighted stocks could also be impacted by movements in crude oil (USO) (UCO) prices in the short term. Crude oil prices can drive the sentiment for the entire energy complex and not just for crude oil stocks.

Performance of natural gas–weighted stocks and natural gas since 2016 lows

On March 3, 2016, natural gas futures touched a 17-year low of $1.64. From March 3 to November 21, 2016, natural gas (UNG) (BOIL) (UGAZ) (FCG) rose 79.9% on a closing price basis. Our basket of equally weighted upstream stocks only rose 28.1% during the same period.

The smaller gain in gas-weighted stocks compared to natural gas could be attributed to the weaker position that some of these natural gas–heavy companies are in due to chronically low natural gas prices over the last few years.

Here’s how some of the companies in the basket performed during this period. The following natural gas–weighted stocks were among the outperformers:

  • Rice Energy (RICE) – 80.9%
  • WPX Energy (WPX) – 54.8%
  • Chesapeake Energy (CHK) – 24.4%

The following natural gas–weighted stocks didn’t fare as well:

  • Range Resources (RRC) – 18.2%
  • Cabot Oil & Gas (COG) – 14.2%
  • Gulfport Energy (GPOR) – 0.2%

So, natural gas–weighted stocks underperformed natural gas in the last five trading sessions and since the low in March. We need to wait and see if the trend continues, particularly if natural gas turns bullish due to the weather getting colder.

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