Article Highlights:
- The natural gas stock price has been cut in half in less than a year.
- Meanwhile, U.S. gas production has doubled in less than 15 years.
- If gas stays at this level or continues to fall, some industries will benefit.
It often makes sense to take what the market is giving you.
Let’s say you learned the price of gasoline was going to increase to $10 per gallon next week.
If you are like a lot of people, you would stock up on gas. Or at least make sure your car was full of gas.
That makes sense.
If a credible source gives you legal information that you can use to your benefit, you do it.
Now consider the opposite scenario. Let’s say the price was going to decrease to $0.50 per gallon. What would you do then?
We Have Too Much Natural Gas
Of course, I don’t think gas is going to go up or down that much.
But I know one type of energy that has been struggling as of late.
Check out the price of natural gas:
The natural gas price has been cut in half in less than a year.
And we know exactly why this is happening: Energy companies are producing more of it.
Here’s the growth in the gross production of natural gas over the past 14 years:
The increase is nothing short of amazing, really.
It’s vivid proof that ingenuity is alive and well in the energy sector.
The U.S. has doubled the amount of gas it produces in less than 15 years.
In fact, we have so much of it that some goes unused.
So What?
We’re investors. And it’s our job to assess what this means.
We already established that if the price of gas at the pump increased to $10 per gallon next week, you would stock up this week.
We need to do the same thing with natural gas.
Its price is falling like crazy.
If it stays at this level or continues to fall, some industries will benefit. As investors, that’s what we care about.
One example of an industry that benefits from falling natural gas prices is gas utilities.
These companies distribute gas to homes and businesses. As the price falls, so do their operating expenses.
Take a look at the returns of the major gas utilities. They have outperformed the S&P 500 Index by more than double — on average — over the past year:
These stocks will continue to do well if natural gas prices remain at or below current levels.
An Industry to Keep Your Eye On
Another industry that benefits from low natural gas prices is fertilizer-makers.
Natural gas can make up 60% to 80% of the cost to produce ammonia. Ammonia is a valuable source of nitrogen, which is essential for plant growth.
There are many fertilizer-makers in the world. We want to focus on those that source their natural gas from North America.
These companies have a competitive advantage over their global peers: Their highest cost is downright cheap!
For Jeff Yastine’s and my Insider Profit Trader service, we’re watching Nutrien Ltd. (NYSE: NTR). It’s a merger of PotashCorp and Agrium.
It pays a 3.4% dividend yield at current prices.
And its insiders have a history of buying at the right time:
Nutrien shares haven’t fared as well as gas utilities. A big reason is its major customers (farmers) just experienced the second-wettest six-month period in 125 years.
That delayed planting season and held back earnings a bit. It also gave us an opportunity.
Keeping tabs on what insiders are doing will alert us when to pounce on that opportunity.
You see, something great has happened since Nutrien went public. Every time insiders bought, shares rose an average of 9.4% just four weeks later.
We want to copy these folks.
We will look to buy the stock when the company’s principals reach into their pockets and buy more shares.
After all, we love to take what the market gives us.
Good investing,
Brian Christopher
Editor, Insider Profit Trader
