This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Get Ready to Short Shale Mania: Analysts

NEW YORK ( TheStreet) -- Shale Mania is back, and for some analysts, this means there are as many natural gas stocks to short on the euphoria as there are to be taken out by acquirers writing big premium checks.

Analysts say there may be plenty of irrational exuberance in natural gas sector as a result of the above-60% premium that BHP Billiton (BHP) is paying for Petrohawk (HK - Get Report), a contrarian view based on the idea that the Petrohawk deal was more about Petrohawk than industry consolidation.

As natural gas prices remain low, and both buyers and sellers take their sweet time before jumping into a deal traders may be taking quick profits in stocks like Range Resources and Southwestern Energy, which surged on the Petrohawk deal.

"I wouldn't be surprised to see a few deals, but with the healthy degree of appreciation in stocks like Range Resources (RRC - Get Report), Southwestern Energy (SWN - Get Report)and Comstock Resources (CRK - Get Report), it's hard to believe all the names maintain gains for any longer than a week to a month," said Curtis Trimble, analyst at MKM Partners.

Other energy analysts agreed that it wouldn't be a surprise to see Range Resources, which rose 12% on Friday, and Southwestern Energy, up 9%, to give back some of those gains. They are not heavily shorted stocks, but short covering may have been embedded in the action on Friday also. Range Resources short interest equals about 9% of its float, according to Nasdaq. Analysts also noted that both companies are natural gas-heavy in their portfolios, whereas Petrohawk had made a significant transition to oil through the Eagle Ford shale.

"Southwestern and Range will be natural gas-heavy forever," said MKM Partners' Trimble. That said, their portfolios do represents some of the best plays in the shale space, between the Fayetteville and Marcellus shale, and are multi-basin portfolios, which is a requirement for the big checks from big buyers.

Unless there is a big spike in the price of the underlying commodity, analysts question whether the management teams of these companies will be motivated to sell sooner rather than later.

"Financial buyers like private equity will buy assets, not companies, and the integrated companies will do about one a quarter, as we've already seen. Unless there is some fundamental sign that natural gas is about to spike, people have time to wait and get more value from their assets," Trimble said. He sees Ultra Petroleum, up 5% compared to twice that gain in Range and Southwestern, as much more likely to be interested in selling sooner rather than later.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
BHP $51.04 3.70%
CRK $4.63 -0.86%
GDP $3.63 -2.94%
HK $1.57 -2.48%
PXD $174.10 -0.61%


DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs