As we discussed yesterday, it’s at least my opinion that natural gas is cheap. If you believe in buying assets that are out of favor as I do, then you’ll want to look at picking some up. What’s the best way to do it?
The purest play on the price of the commodity is one of the ETFs that tracks the commodity itself. You can either buy the Claymore ETF in Canada, or the American one. There’s no company specific risk or high management fees. All it tracks is the price of the commodity.
What if you want some income while you wait? Then you’d probably want to look towards one of the ETFs that included companies. A quick search on ETF Stock Encyclopedia can point you in the direction of a suitable ETF. Since these are funds that follow indexes, chances are that you won’t get much yield while you wait. The ones I quickly looked at had yields at less than 0.5%. I’m looking to be paid a little more while I wait, so what about individual companies?
The first I looked at was the new Encana. Recently the company split into two, with the natural gas assets being kept under the Encana name, while the new oil company is called Cenovus. Encana is Canada’s leading natural gas producer, with a solid balance sheet and a close to 3% dividend. The company has the resources to weather a downturn in prices for a long time.
There’s one big glaring issue with Encana however: that pesky Canadian dollar. Every cent that our dollar goes up compared to the American buck takes a bite directly out of Encana’s bottom line. Not only is natural gas cheap, it’s even cheaper once a company gets paid for it in American dollars.
Many of the big American natural gas drillers also have significant oil production, making them irrelevant to our discussion. The largest pure gas play is Chesapeake Energy, a company that doesn’t really offer us a lot of price appreciation or a high yield while you wait.
Another pure player is the Russian Gazprom. This one isn’t recommended without much further research. Oh, and the London Stock Exchange’s website is in need for improvement.
Honestly, to end this post with more of a whimper than a bang, it’s tough to find American plays that aren’t mature or have significant oil production. And if you’re not paid to wait, then perhaps there needs to be a different place to deploy your capital. It could be a while before prices recover, so getting paid to wait is paramount.