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TheStreet Open House

4 Contrarian Natural Gas Stocks

By Roberto Pedone

WINDERMERE, Florida ( Stockpickr) -- Being a contrarian investor can help market players rein in big profits on Wall Street. A contrarian believes that certain crowd behavior among investors can lead to exploitable mispricing in securities markets.

For example, when the S&P 500 was trading at 1040 recently, the investor sentiment readings were registering extremely bearish. On Aug. 26, when the S&P 500 was at the 1040-1050 level, the AAI measure of individual investor sentiment had bulls at 20.7, the lowest since March 2009.

Following that negative reading, the market did the exact opposite of what the crowd was expecting and soared higher, all the way up toward its current level around 1142. As you can see, contrarian investing can produce powerful returns.

Another market that could be setting up for a great contrarian trade is the natural gas complex. On Monday, Bloomberg.com reported that hedge funds had reduced their bullish bets on natural gas to the lowest level this year. This change is mostly due to mild weather and a lack of any significant hurricanes in the Gulf of Mexico.

>>>Cramer's Nat Gas Burnout Stocks

According to the article, hedge funds and other large speculators cut their bullish bets on natural gas by 16% as of Sept. 14. Natural gas is down 31% this year mainly due to rising production from shale formations and a supply gut that saw no significant impact from this year's extremely hot summer.

Since the hedge funds seem to be souring on the natural gas trade, it might be time to start looking for opportunities in the sector. Things could be setting up for a great contrarian play now that many of the large traders are starting to throw in the towel.

Also, a number of catalysts for natural gas could be on the horizon, including federal support of natural gas, threatened oil supplies in the Middle East due to geopolitical risks, reduced shale gas production and a potential storm that's developing in the Southeastern Caribbean Sea that could hurt production in the Gulf of Mexico.

Here 's a look at a number of natural gas stocks that could be setting up to make for great contrarian trades.

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