Natural Gas Plays For Years to Come

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The United States has a lot of natural gas, and there’s definitely money to be made from this product. Moving the gas around, storing it, extracting it and other operations are performed by a variety of companies around the United States. In this article we’ll explore some of the biggest names that are involved in the natural gas business.

Before we jump into the companies, it’s probably better that we understand a little about natural gas. The uses of natural gas revolve around heating in both homes and industry, and we can also use it for electric generation. The country with the most proven reserves of the gas is Russia; they have about 18% of the world’s known reserves under their soil. The United States ranks fifth on the list of reserves, with 3% available. That’s a lot of natural gas, and over the coming years it will play a pivotal role in the U.S.’s plans to become energy independent.

ExxonMobil (NYSE: XOM)

We might as well get the list started with the United States’ biggest natural gas producer, ExxonMobil. Exxon is essentially a safe harbor, high yielding oil & gas play that can do no wrong in any investor’s portfolio.

ExxonMobil has been a part of the American corporate landscape since John D. Rockerfeller founded Standard Oil in 1870. Today, though, it’s a much more diverse beast that has operations around the globe, revenues close to $500 billion per year, and huge net income coming in at $40+ billion.

While this article is about natural gas, I feel that Exxon may be the stock to go with in this field due to its relative safety. A quick look at some financial data shows us a 9.6 P/E ratio, which is pretty low. The yield is at 2.5%, something that dividend holders will love to see, the EPS is growing at a 3.56% average over the last five years, and the dividend continues to grow at 7.7% over the last five years.

General Electric (NYSE: GE)

GE will continue to invest in their Oil and Gas unit for years, perhaps decades, to come. It so far has been through a complete turnaround since Jeff Immelt took the reins, and this division of the gigantic conglomerate may find its second wind with natural gas transportation.

GE has lots of capital to allocate and three well positioned divisions within the company that could benefit from massive energy growth in the United States. The aforementioned Oil and Gas unit will definitely benefit from more drilling. They can provide the infrastructure and technology to companies who want to drill in the United States and even around the world. The GE Energy Management division will likely thrive as they consult their vast array of partners about using natural gas, moving it around the country or even getting it out of the ground. GE Power and Water will also be able to sell a lot more of their turbines, engines, and services to those that need the help.

In terms of financials, GE is investment-worthy. The company trades at a P/E multiple of 15.9, they provide a yield of 3.6%, and they’ve grown their EPS at an average of 6.71% over the last three years. They’re involved in everything from the previously discussed power generation and services all the way up to jet engines, light bulbs, and water processing.

How About Cummins (NYSE: CMI)?

Cummins might not seem like a good natural gas play, but it is. The company designs and manufactures some of the world’s leading natural gas powered engines. These engines can be used on and off the highway in trucks, buses, RVs, cars, agricultural vehicles, and even construction vehicles.

While gasoline is what we’re currently putting into our cars, I feel that natural gas will definitely find its place in industrial vehicles fairly soon. When industry begins using natural gas to power their vehicles, Cummins will be there with their expertise in the engine business.

The whole engine idea isn’t just U.S.-based either. Cummins has locations around the world. India and China may find some great use in natural gas engines for infrastructure, or even vehicles for their huge populations.

Cummins is a five star rated CAPS stock that trades at 11.92 times earnings. The stock pays a 1.8% dividend and they’ve been experiencing some incredible EPS growth over the last five years at a rate of 23.79%. Dividends have also been on the rise at a five year average rate of 29.87%. If you’re worried about the sustainability of their company, I wouldn’t be. Their engines will continue to thrive, as will their electric power systems, fuel system controls, and air handling systems. Cummins is a buy for anyone looking at long term investing!


Ash1402 has no position in any stocks mentioned. The Motley Fool recommends Cummins. The Motley Fool owns shares of Cummins and General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus