While significant sums can be made in a short time period in the United States Natural Gas Fund (UNG) and in the very risky VelocityShares 3x Natural Gas ETN (UGAZ), they are actually terrible investments.
UNG is severely prone to negative impacts from contango given that it is forced to buy the near month contract. The same holds for UGAZ. This is because of contango once again, much like we saw with UNG, except that the balancing of the fund is done not on a monthly basis, but daily. In fact, these types of funds are designed to achieve their investment objectives on a daily period, not over a longer-term period. This tool should only be used for short-term trades ONLY.
we prefer investments be made in companies that have significant exposure to natural gas. Many of these investments were crushed in 2017. Our top three investment recommendations in this space are:
Chesapeake Energy (CHK), Range Resources (RRC) and Cabot Oil and Gas (COG).
There are many more names, but each of these three names has made our list for potential rebound plays should a natural gas rally continue.
As you can see, these names are in rally mode. Although CHK is a play on oil prices in addition to natural gas prices, we list it because of the potential for a massive rebound in the stock as both oil and natural gas prices are rebounding.
Range Resources is one of the biggest Marcellus shale players. It has been crushed along with natural gas prices, and although 2018 looks to be a year of transition, speculative buyers could get out in front of an energy rebound with this name.
Finally Cabot Oil and Gas is a strong recommendation. While this name is also in transition, including a massive sale of its Eagle Ford Shale assets, we believe this should be considered a top 2018 play in the space, especially if natural gas prices continue to rally.
While each of these three names was just a quick list of investments, we plan to offer an in depth analysis on each of the three. However, investors should use this time between this publication and those analyses to conduct their own research into these three names.
UNG and UGAZ remain our favored ways to trade natural gas. UNG is less volatile and can be held for weeks at a time, while UGAZ should be day traded given the way it is structured. However, neither of these are investments. For investments we prefer stocks that have exposure to natural gas (as well as oil etc.) which can be held long-term.
Right now we have screened CHK, RRC and COG as names you should research, while our in depth analyses will be published this month. However, with the movement in natural gas prices, we believe the best actionable advice is to get started now on researching these names, while considering a short-term trade in UNG or UGAZ.
With even more frigid temperatures projected for much of the country this week and next, we see no signs of the natural gas rally slowing this week. We highly recommend our readers take advantage.
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