Looking for the right fuel to bring profits in 2014? Natural gas just might be that fuel. According to the U.S. Energy Administration, natural gas prices look to be heading higher in the year ahead:
Source: Energy Information Administration.
While it's entirely possible that natural gas prices dip in 2014, there is more potential upside in the price of natural gas. However, even if gas prices don't head too much higher in the year ahead, the stocks of the low-cost natural gas producers like the five I'm about to reveal should still do quite well.
Ready for the next level
Chesapeake Energy (CHKA.Q) was the top performer on this list in 2013, as its stock is up about 65% since the start of the year. That, however, has more to do with showing now-former CEO Aubrey McClendon the door than any natural gas fueled performance. That said, Chesapeake Energy is still one of America's top natural gas producers. It has a vast resource base leaving it with tremendous upside to natural gas prices. Finally, its new CEO has the company focusing on returns over growth, which should yield improvements in its profitability. Add it all up, and Chesapeake Energy is a top natural gas stock for 2014.
Best position in the best play
Cabot Oil & Gas (CTRA -0.10%) simply has one of the best natural gas resource positions in America. As a result, it can earn before tax internal rates of return in excess of 100% when natural gas is above $3.50 per Mmbtu. As a low-cost producer, Cabot can earn even better returns if natural gas prices head higher. For example, a gas price of $4.50 per Mmbtu will earn the company a before tax internal rate of return of nearly 190%, which shows how much upside Cabot's stock has if natural gas price do head higher in the year ahead.
Incredible resource potential
Range Resources (RRC -0.32%) believes that its acreage position holds more than 83 trillion cubic feet equivalent of natural gas. That's without counting its Utica Shale position. To put that number into perspective, 5 trillion cubic feet of natural gas is enough to fuel 5 million households for the next 15 years. Those vast resources should enable Range to grow its natural gas production by 20% to 25% per year for many, many years. Best of all, like Cabot it can earn triple-digit returns on the wells it drills making Range Resources a great natural gas stock to own for 2014 and beyond.
King coal dethroned
CONSOL Energy (CNX -1.11%) used to be known as a coal producer with a natural gas business. Now, the company is a natural gas producer that also mines some coal. After shedding some of its legacy coal mines, the new CONSOL is really turning on the gas, so to speak, and will be growing its natural gas production by 30% annually through 2016. That shift toward natural gas could make it a top natural gas stock in the year ahead.
Ready to grow
Like CONSOL, EQT (EQT 2.48%) has been shedding legacy assets. The company formed an MLP with its midstream assets in 2012 and this past year announced the sale of its natural gas utility. Like many of the companies on this list, EQT is a low-cost producer, which enables it to make money even if natural gas prices fall. With tremendous upside if prices increase and a large resource base, EQT is another company that is well positioned for natural gas fueled growth in 2014 and beyond.
Investor takeaway
Natural gas stocks could have a big year in 2014. Not only are the names on this list among the lowest-cost producers, but they all have an incredible resource position as wel. That makes each a top stock not just for 2014, but for years to come.
