Focus: finding the "go-to" natural gas stock, with a liquids tilt For natural gas stock investors who expect a recovery in gas prices from near-decade lows but are weary of the murky outlook for Chesapeake Energy (CHK - Get Report), Credit Suisse analyst Arun Jayaram suggests that Southwestern Energy (SWN - Get Report) is a "go-to" stock when natural gas prices turn because of its strong balance sheet and its existing base of production in the Fayetteville and Marcellus shale's.
Focus: natural gas stocks as a defensive trade As drillers like Southwestern catch the interest of some, Carl Icahn's recent activist investment in Chesapeake Energy has boosted the natural gas sector's biggest 2012 stock story. In Wednesday trading, Chesapeake Energy rose over 5% on Bloomberg reports that the company is considering selling its minority stake in its Chesapeake Midstream Partners (CHKM) pipeline unit for $4 billion. Now some are targeting natural gas producers as a way to defend against the possibility negative macroeconomic data continues to hit energy prices. "We see the recent outperformance of natural gas stocks as a defensive trade within the group (vs. downside risks to oil)," writes Deutsche Bank oil and gas equity analyst Stephen Richardson in a Wednesday note to clients. Still, Richardson concedes its a risky proposition. "While we see tighter balances in 2013 [and] beyond for the commodity, we expect the stocks to remain volatile due to little support from earnings momentum even in a $4/mmbtu environment in 2013," he adds. Although natural gas has been hit by an oversupply in the U.S. and a persistent inventory build, Richardson notes that a drop in natural gas drilling rigs may not cut inventories. "A massive step change in upstream operating efficiency has challenged the rigs to production relationship," he writes, citing calculations that although rigs are down 31% production declines have been "slow to materialize."