Ramped up natural gas production helped push the commodity's price to its lowest summer levels since 1998. The U.S. Energy Information Administration (EIA) projects that gas production will rise 10% in 2019, backing up a 12% increase in 2018 – its biggest annual percentage output gain in nearly 70 years.
Despite this bearish backdrop along with EIA data last week showing an unexpected build in natural gas inventories, the commodity staged an impressive late-week reversal to close 6% above its intra-week low. The surprise turnaround in prices may relate to a Reuters weather forecast model that suggests a rise in demand of 2.35 billion cubic feet (Bcf) to 11.3 Bcf over the next two weeks from the earlier estimated figures, according to marketrealist.com.
Those who think that recent trading action indicates that prices have mostly factored in the unfavorable fundamentals should consider taking a long position in one of these three large natural gas producing companies that tend to track the commodity's fortunes. Let's examine each firm in more detail and work through several bullish trading scenarios.
EQT Corporation (EQT)
With a market capitalization of $2.63 billion, EQT Corporation (EQT) operates as a natural gas production company in the United States. The Pittsburgh, Pennsylvania-based energy giant held 21.8 trillion cubic feet (Tcfe) of proved natural gas, natural gas liquids (NGLs), and crude oil reserves as of the end of 2018. EQT's second quarter (Q2) adjusted earnings came in at 9 cents per share, above analysts' expectations calling for a loss of 4 cents. Revenue for the period also topped forecasts and grew 38% from the year-ago quarter. Furthermore, natural gas sales volume increased to 370.1 billion cubic feet (Bcfe) from 362.5 Bcfe in the 2018 June quarter. The company's stock issues a 1.13% dividend yield and has tumbled almost 50% year to date (YTD) as of Oct. 7, 2019.
EQT's share price set a fresh 52-week low on Thursday, Oct. 3, but promptly reversed the next trading day to print a hammer candlestick and close above the September swing low. Also, a bullish divergence between price and the relative strength index (RSI) has formed to suggest waning seller momentum. Trade a possible double bottom by setting a take-profit order near last month's high at $13.12 and placing stops underneath Thursday's low at $9.06.
Chesapeake Energy Corporation (CHK)
Chesapeake Energy Corporation (CHK) engages in the exploration and production of oil, natural gas, and NGLs in the United States. At the end of last year, the company held interests in roughly 13,000 oil and natural gas wells. The $2.58 billion natural gas producer reported a loss of 10 cents per share, which compares to a profit of 15 cents per share in the prior-year quarter. However, Chesapeake's revenue surpassed the Street expectation by nearly $500 million to record year-over-year growth of 48%. Analysts have a 12-month price target on the stock at $1.95, representing 43% upside from Friday's $1.36 closing price. As of Oct. 7, 2019, the Oklahoma City-based company's share price trades down 35.24% on the year.
Chesapeake shares trended consistently lower between April and July, but like EQT, the stock appears to be forming a possible double bottom. A retracement over the past two weeks has found support from the August swing low and a five-month trendline. Buying this week on the back of higher natural gas prices has the potential to trigger a short covering-fueled rally, given that nearly 25% of the company's float is held short. Traders who go long should look for a retest of crucial overhead resistance around $2. Set stop-loss orders beneath either the Oct. 3 low at $1.28 or under the August bottom at $1.26, depending on personal risk preference.
Southwestern Energy Company (SWN)
Texas-based Southwestern Energy Company (SWN) operates as an independent energy firm that explores for, develops, and produces natural gas and oil. The 90-year-old company's estimated proven natural gas, oil, and NGLs reserves amounted to almost 12 Tcfe as of Dec. 31. 2018. Although the energy player came in just shy of Wall Street's top- and bottom-line Q2 forecasts, UBS Group upgraded Southwestern Energy stock from "sell" to "neutral." The Swiss investment bank estimates the current net asset value for the stock at $1.90 per share based on NGL pricing, actual costs, and restructuring progress. Southwestern Energy stock has a $1.02 billion market cap and is down 44.87% YTD as of Oct. 7, 2019.
Since jumping 65% from its 2019 YTD low, the company's share price has given back most of those gains over the past month of trading. Despite the recent fall, the stock now finds support from a previous downtrend line that extends back to April/May. Those who take an entry should book profits on a move to $3.25, where price may encounter stiff resistance from the December 2018 swing low and falling 200-day simple moving average (SMA). The trade offers an excellent risk/reward ratio of over 1:7, assuming a stop positioned below support at $1.70 and an execution at Friday's $1.88 closing price ($1.37 profit per share vs. 19 cents risk per share).