Drink In These 5 Top Stocks

Whether it's the corporate lunchroom, your cubicle, or the local watering hole after work, there are regular places we gather to discuss news, sports or -- if you're like us -- stocks. Here at Motley Fool CAPS, we gather around the virtual water cooler daily to rate stocks and delve into their merits as investments.

Our 140,000-strong CAPS community -- where members give the thumbs-up or thumbs-down to some 5,300 stocks -- seeks businesses it thinks will outperform the market. Below we'll take a look at some of the most popular and talked-about stocks in the CAPS universe, and examine whether you think they'll continue their winning ways.

A tall drink of water
Natural gas has taken what might rightly be called a black swan dive. Its price is so far outside its historical valuation compared to oil prices as to be considered a rare, one-time event, like the appearance of a black swan. Such a situation suggests that either gas or oil will make a move so that the ratio reverts to the mean.

While I agree with many on CAPS who believe gas prices will be the vehicle that narrows the distance, I wouldn't recommend United States Natural Gas as the driver of that move.

First, our demand for oil is still so great that it's hard to imagine the price could drop far enough to close the gap. The ratio of the front-month contracts of oil and natural gas rose to more than 27 in recent days, well ahead of the typical range of 6 to 15. Also, there have been changes going on at USNG that make it a riskier play.

USNG is a commodity ETF that tracks an underlying basket of securities and futures contracts on natural gas, rolling its positions every month as contracts expire. Recently, though, it began trading at a big premium to its NAV, causing management to refuse to issue new shares when it ran out of its original allotment.

Futures pools, like USNG, need to issue shares on a regular basis to track the underlying shares. USNG got approval to do so, but when the CFTC began investigating whether speculators were responsible for high gas prices, USNG opted not to issue the shares because it might end up having to divest itself of them if the regulator imposed limits on the size of positions that commodity funds can hold.

Even though USNG has risen more than 16% over the past week as natural gas prices have moved up off their seven-year lows, I think you'll find better plays in other parts of the industry. Anadarko (NYSE:APC) has moved higher by a similar amount, while Chesapeake Energy (NYSE:CHK) is up more than 22% for the week, and both remain strong contenders.

Surprisingly, even though we have burgeoning supplies, storage facility operators like Dominion Resources haven't been faring as well, and capacity issues may crimp production at E&P companies like EOG Resources.

United States Natural Gas looks like it would be a natural to win with any movements north in pricing, and in the short term it might. But until industrial demand recovers, as CAPS player BobbyGeology points out, there are too many risks concerning its future to consider investing in it.

Gather 'round
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