In July of last year I wrote that the United States Natural Gas Fund ETF (UNG) looked ripe for gains after a 30% drop from $54 to $38 per share. In recent weeks natural gas has become a hot commodity, with prices hitting $10 last week, up from under $6 last year. UNG shares have jumped 25% to $47 each and I think some profit taking is in order. Long term I still like energy in general and gas specifically, but at this point I think owning hedged exploration and production stocks makes more sense than owning the gas ETF after such a large increase in underlying commodity price.
Which gas stock would I point readers toward? Long time readers will be bored with this company, but Chesapeake Energy (CHK) continues to be my favorite domestic natural gas stock (newer readers can refer to my September 2006 piece entitled An Attractive Entry Point For Chesapeake Energy). Like UNG, CHK too has risen sharply (from $29 to $44 since that bullish article), but they have the advantage of being able to hedge prices for their ever-growing production, so they will get hit much less than UNG during the next natural gas sell off, which will surely come despite the recent renewed enthusiasm for the commodity.
Full Disclosure: Long CHK at the time of writing
Monday, March 10, 2008
Natural Gas Update
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The content contained in this blog represents the opinions of Mr. Brand. Mr. Brand may hold long or short positions in the securities discussed in this blog, but such positions will be disclosed. All of the information contained on this site is believed to be accurate when published, but mistakes could inadvertently be made.
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2 comments:
after reading your old post, i'm just curious as to why you personally like CHK out of the bunch? based on fundamentals alone, it seems like DVN or SJT might be a better play on nat gas (even though i realize the latter is a trust). Does CHK have something that I'm missing? Because their fundies seem to put them in the middle of the pack as just 'average' in terms of nat gas players. thanks for your thoughts
see today's post on chk
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