Get Ready for the Bounce

"Don't catch a falling knife," as the old saw commands. (Pardon my mixing a cutlery metaphor.) The idea of buying a former superstar stock at a discount price certainly has its attractions, but you've got to make sure you catch the haft -- not the blade. That's where Motley Fool CAPS comes in.

It's been awhile, but thanks to last week's sell-off, we once again have a chance to stand beneath Mr. Market's silverware drawer in hopes of snagging a bargain. Let's meet today's contenders:

Company

 

52-Week High

Recent Price

CAPS Rating
(out of 5)

Ultra Petroleum (NYSE: UPL  ) $51.20 $19.00 *****
Hugoton Royalty Trust (NYSE: HGT  ) $24.25 $13.05 *****
Chesapeake Energy (NYSE: CHK  ) $35.75 $19.93 *****
Southwestern Energy (NYSE: SWN  ) $49.25 $28.40 ****
United States Natural Gas (NYSE: UNG  ) $50.56 $14.94 **

Companies selected from the list of stocks hitting new intraday 52-week lows as reported on finviz.com. Recent price and 52-week high provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

The week in weak stocks
Markets ended their second week of declines in a row on Friday, as the S&P 500 slipped to 1,370. The good news is that the S&P remains in positive territory for the year to date. The bad news is that not all stocks are so lucky.

Natural gas prices that hit their lowest rates in a decade last week ($1.98 per 1,000 cubic feet) are devastating the share prices of anyone and everyone involved in the nat-gas industry. Ultra and Hugoton, Chesapeake and Southwestern Energy, and of course the U.S. Natural Gas ETF -- each is hobbling around at 52-week lows. And yet, while investors remain (justifiably) skeptical of the ETF that's come to exemplify the nat-gas industry's problems, they remain stubbornly optimistic about the prospects for companies that actually suck the stuff out of the ground, awarding four- and five-star ratings to each of the major players.

Why? CAPS member shadestrades is convinced that what goes down must come up eventually, and while awaiting a "Natty Gas rebound" is content to reap Hugoton's "6+% royalty payment."

countylongford is counting on a growing "[infrastructure] for natual gas fueling stations" to fuel the rebound, and thinks Chesapeake Energy is well placed to benefit from it.

Meanwhile, redt3x is looking further abroad, counting on "demand for traditional oil and gas [to] only rise as more countries are developing. "

The bull case for Ultra Petroleum
Drilling down to find a buy thesis on a particular stock, though, I think CAPS member GirlsUnder30 has the strongest argument, predicting that Ultra Petroleum's "great extraction technology [and] competent managers" will help it to capitalize upon "a depressed commodity that has to improve in either market share or price" faster than anyone else in the industry.

Since we last talked about Ultra Petroleum in this column (in February), the stock has basically tracked the downward trajectory of gas -- gas prices down 20%, Ultra's share price likewise. But the fact still remains: Across the nat-gas industry, you'll be hard-pressed to find a company with a lower cost of production than Ultra's.

At roughly $2.61 per million cubic feet equivalent, the company was close to breakeven at the prices nat gas fetched two months ago. Today, it's operating at a loss -- but still closer to breakeven than anybody else in the nat-gas game. (Chesapeake Energy, for example, needs gas to more than triple in price before it can make a profit on the stuff, and even Southwestern Energy requires close to a double.)

Foolish takeaway
Tough times continue in the natural gas industry, and they may stay tough for quite some time. If you're looking for a company that will bounce back before the others, though -- and maybe bounce back hard if our CAPS members' predictions for rising domestic and international demand prove out -- then Ultra Petroleum looks like the best bet out there.

Don't want to wait for the tide to turn in natural gas? Looking for an energy stock you can profit from right now? Read our new Fool report, and discover the only energy stock you'll ever need.

The Motley Fool owns shares of Ultra Petroleum. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy and Ultra Petroleum, but Fool contributor Rich Smith does not own or short shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 356 out of more than 180,000 members. The Fool has a disclosure policy.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.


Read/Post Comments (0) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1862607, ~/Articles/ArticleHandler.aspx, 10/31/2014 12:02:51 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 17,195.42 221.11 1.30%
S&P 500 1,994.65 12.35 0.62%
NASD 4,566.14 16.91 0.37%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/30/2014 4:09 PM
UPL $22.86 Down -0.92 -3.87%
Ultra Petroleum CAPS Rating: ****
CHK $21.35 Down -0.24 -1.11%
Chesapeake Energy CAPS Rating: ****
HGT $9.04 Down -0.04 -0.44%
Hugoton Royalty Tr… CAPS Rating: **
SWN $31.48 Down -0.43 -1.35%
Southwestern Energ… CAPS Rating: ***

Advertisement