Top Natural Gas Stocks for Q3 2022

Natural gas has long been a staple resource used in heating, cooking, and electricity production. More recently, it has begun to figure more prominently in industrial applications and even as a fuel source for automobiles. The U.S. Department of Energy estimates that about 23 million vehicles worldwide are powered by natural gas. It is difficult to find pure play natural gas companies, but many energy companies have large natural gas businesses. Major players include Chesapeake Energy Corp., Antero Resources Corp., and Range Resources Corp.

Natural gas prices spiked in price after the Russian invasion of Ukraine because Russia is a major gas producer and has since been subject to major sanctions.

Natural gas stocks, as measured by a benchmark exchange-traded fund (ETF)—the First Trust Natural Gas ETF (FCG)—have provided a one-year trailing total return of 90.5%. This is well above the Russell 1000’s one-year trailing total return of -5.6%. These figures and all data below are as of June 9, 2022.

Here are the top three natural gas stocks with the best value, the fastest growth, and the most momentum. As mentioned, many of these companies are not pure play natural gas names, but they focus more than half of their production (or, in the case of midstream companies, throughput) on natural gas.

The reason why price to sales is used for our value stocks in this story is that there were not enough natural gas companies in our list with a positive trailing price-to-earnings ratio (P/E ratio) in our database to use that as a metric. So instead we used the 12-month trailing price-to-sales (P/S) ratio in our value section below. In the growth section, multiple companies have positive EPS growth because that metric looks at growth during the most recent quarter, and the natural gas sector turned around fairly recently after struggling for much of the previous year. Therefore, we see positive earnings numbers when looking at growth in the most recent quarter, but not when looking at the combined earnings of the previous four quarters combined, as our value metrics do. This underscores how changing the time period of your analysis can drastically alter your assessment of a sector.

These are the natural gas stocks with the lowest 12-month trailing price-to-sales (P/S) ratio. For companies in early stages of development or industries suffering from major shocks, this can be substituted as a rough measure of a business’s value. A business with higher sales could eventually produce more profit when it achieves, or returns to, profitability. The P/S ratio shows how much you’re paying for the stock for each dollar of sales generated.

Source: YCharts

• DCP Midstream L.P.: DCP Midstream is a midstream energy company that transports, trades, markets, and stores natural gas liquids (NGLs) and related products. The company also gathers, compresses, treats, and processes natural gas. DCP Midstream announced in early May financial results for Q1 of its 2022 fiscal year (FY), the three-month period ended March 31, 2022. Net income allocable to the limited partners rose 69.2% on revenue growth of 45.6% compared to the year-ago quarter.
• Southwestern Energy Co.: Southwestern Energy is an independent energy company. The company explores for and produces natural gas, oil, and related products. Southwestern Energy announced in late April financial results for Q1 FY 2022, the three-month period ended March 31, 2022. The company reported a net loss of $2.7 billion, a significant deterioration from the net income of $80 million in the year-ago quarter. Revenue grew 174.5% year over year (YOY). Southwestern Energy recorded a $3.9 billion loss on derivatives, the main reason for the overall net loss.
• Ovintiv Inc.: Ovintiv is an energy exploration and production company. The company explores for and produces oil, natural gas, and NGLs.

These are the top natural gas stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and most recent quarterly YOY EPS growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

Source: YCharts

• Tellurian Inc.: Tellurian is focused on building a low-cost, global natural gas business. The company is developing a portfolio of natural gas production as well as an LNG trading operation and infrastructure. Tellurian announced in mid-May that Keith Teague will be retiring from his role as chief operating officer (COO). The company said that he would continue working with the company in an advisory role. Because Tellurian reported negative EPS in the most recent quarter, an EPS growth rate was not calculated for the table above.
• Coterra Energy Inc.: Coterra Energy Inc is a diversified energy company that develops oil and gas properties. The company explores for and produces oil, natural gas, and NGLs.
• DCP Midstream LP.: See above for company description.

These are the natural gas stocks that had the highest total return over the last 12 months. Companies with total returns over 2,500% were excluded as outliers.

Source: YCharts

• Antero Resources Corp.: Antero Resources is an oil and natural gas company that explores, develops, and acquires natural gas, NGLs, and oil properties.
• Comstock Resources Inc.: Comstock Resources is an independent oil and natural gas producer. The company is focused on developing drilling opportunities in shale formations.
• Vermilion Energy Inc.: Vermilion Energy is a Canada-based energy producer that explores, develops, acquires, and produces crude oil and natural gas properties. The company announced in late May that it has completed its acquisition of Leucrotta Exploration Inc., whose primary asset consists of 81,000 gross contiguous acres of mineral rights. The agreement to acquire Leucrotta was first announced in late March with a net purchase price of CA$477 million ($371 million).

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