A Natural Gas Infrastructure Play

NEW YORK (TheStreet) -- Natural gas prices are headed south once again and U.S. Natural Gas(UNG) is leading the downward spiral. One, though, shouldn't give up on the natural gas sector just yet.

Natural gas prices bottomed out a few months ago before starting a small rally in late May. A slow and steady economic recovery helped support the hopes that natural gas prices could finally be ready to turn higher. From bottom to top, the move was impressive, amounting to upwards of 25% gains for UNG.

But the rally topped out in June, and prices are now heading back towards the 2010 low. Thus far, hurricane season has been mild, while inventories remain well stocked. Over the past 16 months, inventory levels have been at the top of the 5-year range nearly the entire time.

As UNG and natural gas prices advanced, it lifted natural gas stocks and First Trust ISE-Revere Natural Gas(FCG) , since the move in natural gas prices occurred during a respite in the correction. From May 24 to June 15, UNG gained 26.5% while FCG gained 16.7%, beating the SPDR S&P 500's(SPY) return of 4%.

That outperformance transitioned into underperformance once natural gas prices and stock prices dipped. SPY gained just over 1% between June 15 and August 9, but FCG lost nearly 8% as UNG plummeted 17%.

Over the past year, FCG has kept pace with SPY as the rebound in stocks offset the drag of lower natural gas prices. Occasional rallies in UNG have lifted FCG, as we saw in June, but the eventual slide has always brought FCG back to Earth.

Looking forward, there's no reason this has to end soon, but eventually it will. One indicator of this is Master Limited Partnerships' performance in the market. The J.P. Morgan Alerian MLP ETN(AMJ) has been marching higher since inception in April 2009. Shares corrected during May, but while SPY and FCG were dropping to new lows in early July, AMJ was already back to its all-time highs and continues to push skyward into August.

The master limited partnerships are heavily involved in the storage and transportation of natural gas and crude oil, in addition to some companies with operations in exploration and production.

As I argued last year , these companies are a good way to play low natural gas prices because of the inverse relationship between volume and price levels. Even with low natural gas prices, increases in volume are good for the pipeline firms. The strategy has borne out over the past year, helped along by the generous yields offered by these firms.