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What about playing the long-term trend in natural gas pricing?
Some of the most forgotten natural gas E&Ps, like Ultra Petroleum(UPL), are getting some attention.
Mark Hanson, analyst at Morningstar -- which tends to have a longer-term focus than Wall Street -- likes Ultra Petroleum as its shares reside at a 52-week low.
"The fact the the most economic natural gas drillers can make money at $2 to $2.50 prices tells me we are at or near a bottom," Hanson said.
In fact, Hanson thinks that it's probably wiser at this point to bet on upside in Ultra Petroleum rather than continue to ride shares of the independent oil stocks higher, which have already seen shares benefit greatly from $100 oil prices.
"The market seems short-sighted here. From my point of view the contrarian trade here is natural gas. In 12 months I'd be surprised if natural gas was still at $2.50," Hanson said. He added that while Cabot Oil & Gas(COG) is even more economic at drilling than Ultra in a low natural gas pricing environment, Cabot's shares are still up 68% in the past year, even after declining by 10% since the beginning of the year.
"If I look at Ultra and look out 15 years, they are still drilling new Marcellus wells, yet the stock price is reflecting prolonged low gas prices. Ultra may not be a screaming buy, but if you've got 15 years worth of drilling and can make money at $2.50, to me that says there is more upside than downside at this point and it's a reasonable entry point," Hanson said.
There's a good chance that Ultra won't generate too much excitement from analysts or investors, though, even if it makes a good value play.
"I've been getting more calls from people looking at gas names and wondering if it's time to play the contrarian position," said Raymond James analyst Andrew Coleman. Coleman said if natural gas moved from $2.50 to $3.25 it would represent meaningful upside for companies like Ultra.
However, Coleman added that if the turn is a couple of years out then it's harder to recommend stocks like Ultra to investors. "What the market assesses isn't Ultra's current asset mix but expectations over the next 6 to 12 months," Coleman said.
Ultra has one story to leverage asset-wise through its position within the Niobrara shale, one of the hotter regions for liquids exploration in the U.S. Overall, though, it remains heavily weighted to natural gas.
Coleman thinks the best way to think about these heavily weighted natural gas stocks is like an option, or safe haven, if oil prices soften. Broadly speaking, it's unlikely they will look very compelling to investors compared with the oil-levered E&Ps.
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