A warmer than expected U.S. winter and less heat-related demand send natural gas down 24% to start 2017.
But the decline is overextended and fundamentals are improving.
Currently, U.S. natural gas supplies are 14% above seasonal norms. However, several bullish demand factors lurk in the background, including increased liquefied natural gas (LNG) exports and greater pipeline exports to Mexico. The Energy Information Administration (EIA) expects these two demand forces to increase by 20% in 2017, on top of 30% year-over-year growth in 2016.
In fact, the EIA’s monthly report expects new U.S. natural gas export capabilities and growing domestic natural gas consumption to lift Henry Hub natural gas spot prices in 2017 and into 2018.
And the latest setback in natural gas presents a value buy in a dominant player: Range Resources (RRC).
RRC is one of the lowest cost U.S. producers of natural gas and associated liquids, with a proven reserve base valued at $9.0 billion. Additionally, the company beefed up it’s 2017 capital spending budget to $1.15 billion and expects a 30% increase in production.
Additionally, RRC is highly leveraged to U.S. natural gas prices, making it especially attractive for a turn higher in natural gas prices.
My recommendation: Using 3 percent of the funds you have allocated to the Materials, Energy & Ags section, to buy shares in Range Resources Corp., symbol RRC, on a pullback to $24.15 or better. When filled, place a good-till-canceled protective sell-stop at $20.47.
Meanwhile …
Cancel working orders to buy Bunge Ltd. (BG), Caterpillar Inc. (CAT) and Boeing Co. (BA).
These stocks have appreciated substantially since the November election and aren’t worth chasing.
When the time is right, I’ll send you even more recommendations. There will be many new opportunities in this section as 2017 unfolds.
