When Gas Turns Around
Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Natural gas has been trading at multi-decade lows, and natural gas companies' mismanagement has been getting a lot of press...
- Aftermath of the San Bruno pipeline disaster for Pacific Gas & Electric
- Shirking shareholders at Chesapeake Energy (NYSE: CHK)
- Credit problems for smaller players like Pennsylvania Virginia Corp
... it doesn't seem like a natural time to invest in NG companies. Besides the bad news above, both PG&E and Chesapeake are sporting negative free cash flows and downward earnings trends, which explain why they and a lot of their fellows have been beaten up in the market. Some of these companies have been beaten up unfairly. Surely there are companies in this space staying out of the limelight while raking in the cash. If we can find these companies, this is the time to be buying them!
Frankly, I haven't found a gas utility that meets my free cash flow requirement. On the other hand, NG's eventual price rebound and its growing use as a transportation fuel means that someday some gas pipeline operator is going to make a lot of money! So who's likely to last the longest? Not a pure gas utility, but, like PG&E, a company with an electrical component to carry it. Unlike PG&E, CenterPoint Energy (NYSE: CNP) hasn't blown up any customers, but rather leads in customer satisfaction, and sports a positive free cash flow. That may be why it has recently shown bullish price action.
Another likely candidate is Apache Corporation (NYSE: APA), which, like Chesapeake, is involved in gas and oil production. Unlike Chesapeake, it's managed to keep growing its earnings, it's garnered mostly glowing headlines, and it's making cash, not burning it. Further, it's using that cash to buy proven reserves from less well managed competitors, setting it up well for the eventual price recovery in NG.
So Mister Market is wreaking havoc in the natural gas markets, as he does in all markets from time to time. Companies that have been conservatively managed, that have prepared for the unexpected, will see themselves through this rough patch, and those of us Foolish enough to follow them should reap the rewards when the good times come again.
SlowThought has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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.