Exports could provide a big new source of demand. Up till now not much gas has been shipped abroad because the supplies must first be converted to liquefied natural gas, a process that requires expensive infrastructure. Now companies are racing to build LNG facilities that could serve growing markets in Japan and Europe. A new plant in Canada should begin shipping supplies to Asian customers in 2015, and eight projects in the U.S. are currently seeking government approvals.
Croft's holdings include Ultra Petroleum (UPL - Get Report), which produces gas in the rich Marcellus Shale field of Pennsylvania. The company is a low-cost producer, an important advantage in the current environment. "Natural gas producers are not making a lot of money now, but the most efficient companies can remain profitable at low prices," says Croft.
Croft also likes Williams (WMB - Get Report), which operates natural gas pipelines that serve New York City and other areas. Williams charges producers for shipping through the pipelines. Croft says that the volume shipped will increase as demand for gas grows. "The more gas that moves through the pipelines, the more Williams makes," says Croft.
Tim Schwartz, portfolio manager of Schwartz Value, looks for out-of-favor companies with little debt and healthy profits. During the past 10 years, the fund returned 6.8% annually, outdoing 66% of large blend peers.Schwartz says gas supplies have been declining in recent months as companies cut back unprofitable production. That will help to boost prices. A producer Schwartz likes is Southwestern Energy (SWN - Get Report). "They have a history of profitability and very attractive assets around the country," he says. A cautious way to bet on a gas revival is Hennessy Gas Utility Index (GASFX). The fund holds mostly regulated utilities that deliver gas to customers. While the companies can record higher revenues as demand for gas grows, profits are limited by regulators. During the past three years, the fund returned 15.2% annually as investors raced to buy utilities stocks with reliable dividends. Skip Aylesworth, the Hennessy portfolio manager, cautions investors not to expect huge returns in the future. "With a utilities fund, you should be pleased to get annual returns in the range of 6% to 8%," he says. Follow @StanLuxenberg This article was written by an independent contributor, separate from TheStreet's regular news coverage.