Top Natural Gas Stocks for Q2 2023

Hess, Civitas Resources, and Permian Resources led sector performance over the past year

Natural Gas
Source: Unsplash.

Hess Corp., Civitas Resources Inc., and Permian Resources Inc. are among the top-performing natural gas stocks over the past year, all up by 30% despite falling natural gas prices. The benchmark First Trust Natural Gas ETF (FCG) declined by 7% in the last year, while the Russell 1000 Index fell 8%.

We look below at the top natural gas stocks in three categories: best value, fastest growth, and most momentum. The data are as of April 6. While some of the companies aren't pure-play natural gas companies, they focus a substantial amount of their production or throughput on it.

Best Value Natural Gas Stocks

These are the natural gas stocks with the lowest 12-month trailing price-to-sales (P/S) ratio. For companies in early stages of development or industries suffering from major shocks, this can be substituted as a rough measure of a business’s value. A business with higher sales could eventually produce more profit when it achieves, or returns to, profitability. The P/S ratio shows how much you’re paying for the stock for each dollar of sales generated.

Best Value Natural Gas Stocks
  Price ($) Market Capitalization (Market Cap) ($B) 12-Month Trailing P/S Ratio
Obsidian Energy Ltd. (OBE) 6.75 0.6 1.0
Vital Energy (VTLE) 49.10 0.8 1.3
SilverBow Resources Inc. (SBOW) 23.36 0.5 1.6

Source: YCharts

  • Obsidian Energy Ltd.: Obsidian Energy explores, develops, and produces petroleum resources around Alberta, Canada. On Feb. 23, the company released its fourth-quarter full-year earnings. Net income surged 29-fold, with production revenue growing by 38% compared to the year before. The massive increase in net income was due to strong funds flow from operations (FFO) and an impairment loss reversal attributable to higher forecast commodity prices. Shares have fallen 16% over the past year after tripling in the first half of 2022 alongside soaring energy prices.
  • Vital Energy: Vital Energy is an oil and natural gas exploration and development company focused on the Permian Basin in West Texas. Formerly known as Laredo Petroleum, Inc., the company changed its name to Vital Energy in January 2023. Net income in the fourth quarter of 2022 fell by 45% on a 23% drop in total revenue due to weaker sales volume and lower natural gas prices. Shares have fallen more than 35% in the past year, contributing to its low P/S ratio.
  • Silverbow Resources Inc.: SilverBow Resources is an oil and gas company that produces petroleum products in southern Texas. In 2022 the company acquired Sundance Energy and Sandpoint Resources, Texas-based oil exploration companies. These acquisitions have added more than 350 drilling locations to the company's portfolio, contributing to a 31% increase in revenue in the fourth quarter of 2022. Silverbow shares are down 35% in the past year.

Fastest Growing Natural Gas Stocks

These are the top natural gas stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.

Fastest Growing Natural Gas Stocks
Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%)
Tellurian Inc. (TELL) 1.42 0.8 N/A (see company description) 375
Earthstone Energy Inc. (ESTE) 13.85 1.5 67 244
Permian Resources Corp. (PR) 10.95 3.2 -49 141

Source: YCharts

  • Tellurian Inc.: Tellurian is an energy company focused on natural gas production, LNG marketing, and infrastructure assets. Its operations include a terminal facility, pipelines, and upstream natural gas assets. Tellurian's natural gas production more than quadrupled in the fourth quarter following the $125 million acquisition of 5,000 net acres and 44 wells from EnSight Energy. Note Tellurian doesn't have an EPS growth figure in the table above because the company reported negative EPS in the most recent quarter.
  • Earthstone Energy Inc.: Earthstone Energy is an independent oil and gas company focused on acquiring and developing reserves located in the Delaware Basin, Midland Basin, and other areas.
  • Permian Resources Corp.: Permian Resources develops crude oil and natural gas reserves in the Delaware and Midland Basins located in New Mexico and Texas.

Natural Gas Stocks with the Most Momentum

These are the natural gas stocks that had the highest total return over the last 12 months.

Natural Gas Stocks with the Most Momentum
  Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
Hess Corp. (HES) 140.88 43.1 33
Civitas Resources Inc. (CIVI) 70.06 5.6 31
Permian Resources Corp. (PR) 10.95 3.2 30
Russell 1000 N/A N/A -8
First Trust Natural Gas ETF (FCG) N/A N/A -7

Source: YCharts

  • Hess Corp.: Hess is an exploration and production company that sells oil and gas resources from operations in the U.S., Guyana, Malaysia, and Thailand. The company is also a midstream operator for crude oil and natural gas liquids (NGLs). Hess Corp. has consecutively increased its dividend for two years, most recently to $0.44 per share.
  • Civitas Resources Inc.: Civitas produces crude oil and natural gas-related products in the Denver-Julesburg Basin of Colorado. The company has made substantial leadership changes within the last year, including appointing Chris Doyle as President and CEO and Hodge Walker as COO. Civitas reported earnings on Feb. 22, with total revenue increasing by 60% compared to Q4 2021. The company also authorized the repurchase of $300 million in common stock in January.
  • Permian Resources Corp.: See company description above

Advantages of Natural Gas Stocks

Natural gas prices soared in 2022 after Russia invaded Ukraine. Russia is one of the world's largest producers of natural gas, accounting for around 17% of total global production in 2020. It was also the biggest exporter of natural gas in the world as of 2021. The war led many Western countries—including the U.K., U.S., and EU members—to impose sanctions on Russian energy imports, limiting the supply of natural gas in these markets and subsequently increasing prices.

There are many publicly traded companies in the natural gas industry, and their stock performance will tend to improve when the price of natural gas rises. However, if investing in natural gas stocks, it's important to remember that there are factors other than the price of natural gas that affect a company's share price. In other words, just because natural gas prices are up doesn't mean natural gas stocks will rise at the same rate, or at all.

Trends in Natural Gas Stocks

The following are some trends in the natural gas sector that could affect its stock prices.

Price volatility because of Russian sanctions and retaliation: Though the gas-intensive winter season is behind Europe, tensions between Russia and the rest of the continent will persist as long as the war in Ukraine. Russia has been accused of weaponizing energy prices in retaliation for sanctions. Last fall it said the Nordstream pipeline, which has typically supplied the EU with about a third of its Russian natural gas, would be closed indefinitely for "technical reasons."

Global gas demand is falling: The shift toward renewables has been underway for over a decade, but last year's spike in natural gas prices compelled policymakers and businesses to increase investment in renewable energy generation and storage, hastening the transition and eroding global gas demand. Policymakers in Europe are expected to speed up the shift away from natural gas, as the recent EU proposal to support biomethane and hydrogen suggests.

Added liquefied natural gas (LNG) projects: LNG projects will continue to be developed, as LNG prices are expected to be higher. This will happen along with more oil indexation, which can be used either to maintain a stable relative price between two or more goods or services or to maintain a stable real price of a good or service relative to the purchasing power of a currency unit.

Article Sources
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