1 Stock Which Could Benefit From Natural Gas Regulation
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The boom in US natural gas exploration has become a very hot political topic. To Frack or not to Frack has become a subject of debate ranging from the dining room table to the halls of Congress. The idea of using hydraulic fracturing of underground shale deposits to extract natural gas has become a polarizing idea that has left some many uncertain of its future. As investors, this uncertainty does not sit well with us.
Political arguments aside, there is a very real chance that there will be increased regulations on the industry. With these regulations come some very interesting plays in the sector which could bring a hefty return for a savvy investor.
A large aspect of this regulation will more than likely be related to the management of what is known as flowback water, or the wastewater produced from the fracking process. These chemically enhanced waters will need to be treated and the chemicals will need to be disposed of properly. The expansion of this role in the fracking process will play very well into the hands of a select few companies which specialize in the treatment of such types of wastewater. The most notable in this industry is Heckmann Corporation (NYSE: HEK)
While other companies like Aqua America (NYSE: WTR) and Veolia Environment (NYSE: VE) provide water services to oil and gas exploration, Heckmann has a much larger stake in this area. Aqua America’s and Veolia’s oil services segment is but a small operation within these much larger behemoths of the water and water services industry.
The oil and gas market as of late has been not at its best. Natural gas prices hit a 12 year low back in April and they are struggling to find momentum back up. This has sent reverberations throughout the entire industry. Some of the more traditional oil services companies like Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL) saw swings in their stock prices ranging from 20%-25% dips to positive YTD results. Heckmann has been hit the hardest; its stock price has dropped over 55% in 2012 and still yet to recover.
While many may see this big drop as a sign to stay away, I see this as an opportune time to pick up this company. These all time lows could translate into great value for an investor.
Right now, Heckmann is servicing a relatively large debt load and hold a pretty high proportion of goodwill on its balance sheet following the April acquisition of TFI Holdings. I don't see this as a red flag right now because the company is positioning itself to grew very qucikly. It will be something worth watching going forward, though.
Add it Up
So, we have a company with a specialty in an important and emerging industry which could benefit from potential government regulations within the sector. Despite a successful quarter, its stock is trading at all time lows. It is a company with the founder remaining at the helm (a Motley Fool favorite) and they have a high amount of ownership within the company (around 9%).
Put these things together and we have the makings of a big winner in the natural gas space. If this one isn’t already on your watch list, then certainly add it.
TylerCrowe has no positions in the stocks mentioned above. The Motley Fool owns shares of Halliburton Company. Motley Fool newsletter services recommend Aqua America, Halliburton Company, Schlumberger, and Veolia Environnement (ADR). 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.If you have questions about this post or the Fool’s blog network, click here for information.
