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Tickers in this Article: WCAT, BEXP, BRY, ROSE, GTE
The natural gas stocks have been rallying over the last two months even though the price of natural gas futures have continued to struggle moving higher. At some point the demand for the energy commodity will increase along with the price, benefiting the most leveraged of the natural gas stocks. IN PICTURES: World's Greatest Investors

Hunting Wildcat Companies
A group of natural gas stocks that offer investors a higher reward-to-risk scenario are the small and mid-cap plays. They are often speculative and therefore are often referred to as "wildcat" companies. The Jefferies CRB Wildcatters ETF (NYSE:WCAT) invests in a basket of such stocks. A total of 62 stocks based in either the US or Canada makes up the ETF with an annual expense ratio of 0.65%. During the month of January, this ETF gained 3.5% and traded at the best level since it began trading in January 2010.

The Recent Rally
A major reason for the strong performance of WCAT is top holding is Brigham Exploration (Nasdaq:BEXP), which is trading at an all-time high. The stock is a play on the thriving Williston Basin that is located in North Dakota and Montana. BEXP has interest elsewhere, but its main focus is on the gas-rich basin. The stock is a play on the continued success of drilling, but not as much of a fundamental play due to a high forward P/E ratio of 30. Technically the stock is very strong.

Berry Petroleum (NYSE:BRY) is a natural gas play that has properties in the Rocky Mountain region as well as California and Texas. The stock is close to hitting a multi-year high and is now pulling back to support at the $45 area. Fundamentally BRY is more attractive than BEXP with a forward P/E ratio of 20.8. However, the pure growth story is not as exciting for BRY.

Rosetta Resources (Nasdaq:ROSE) is a natural gas and oil company with properties scattered throughout the Western U.S. and Gulf of Mexico. Technically the stock has been on a strong run, doubling in price from late August through early February. During the first two weeks of February, the stock has been pulling back from an all-time high, creating a buying opportunity for willing investors. Fundamentally the stock trades with a forward P/E ratio of 26 - reasonably priced.

Gran Tierra Energy (NYSE:GTE) is a Canadian energy company that has interests in oil and gas properties in Peru, Colombia, and Argentina. The stock hit a new all-time high in early February before pulling back; the selling could continue to send the stock to the $8 area, where a buying opportunity will arise. Of all the stocks mentioned, GTE is trading with a most attractive forward P/E ratio of 17.6, making it my favorite play.

Bottom Line
If the price of natural gas continues to struggle to gain traction higher it could put a limit on the upside for the sector. That being said, if natural gas can start to join other commodities and move higher it will be a boost to the bottom line for the small-cap companies mentioned above. Finally, if individual stock risk is too high, turn to WCAT as your option for the sector. (To learn more, see Natural Gas Industry: An Investment Guide.)

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