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Top Natural Gas Plays for June

In the wake of the BP oil spill, the trend for natural gas is likely to turn very bullish. Here's how to play it.

WINDERMERE, Fla. (Stockpickr) -- The tragedy of the BP (BP) - Get Report oil spill could have lasting effects on not just the environment and habitats of the Gulf Coast but also the local economies of a number of Southern states for years to come. Some officials are now saying that the cleanup alone could take years due to the complexity in capping the blown-out well 5,000 feet below the sea's surface.

Another major problem now developing has the oil spill breaking into hundreds of thousands of patches of oil slicks that are spreading out in so many different directions. This is tragic mess by anyone's standards, and the quicker BP can stop the leak, the better off everyone involved will be.

This unfortunate accident has caused investors who were long shares of BP and other offshore oil drillers a lot of pain. Just BP alone has lost an unbelievable $73 billion and counting of market capitalization since the April close on the stock of $60.48. Other offshore drillers such as

Anadarko Petroleum

(APC) - Get Report

,

Transocean

(RIG) - Get Report

,

Halliburton

(HAL) - Get Report

and

Cameron International

(CAM)

have given up more than $40 billion in market value since the fiery explosion hit the deepwater rig on April 20.

If you owned a piece of the oil drilling sector, you're probably not a very happy camper. Even the broadly diversified

Oil Service HOLDRs ETF

(OIH) - Get Report

, which is a basket of oil drillers and oil services companies, has plunged 27% since the rig blew up.

But instead of focusing on the damage already done and in store, let's take a look at a potential investable trend that is emerging from this unfortunate crisis.

That new trend can be found in natural gas and natural gas stocks. Natural gas is quickly emerging as a pocket of strength in the markets. For months, it has been underperforming the broader markets as supply far outstripped demand. But now natural gas is gaining new attention as a much safer, cleaner, more plentiful and cheaper alternative to crude oil.

Here's a look at some of the

top natural gas stock plays

that could benefit from this potential new trend.

Natural gas futures hit their highest level in more than 15 weeks on Monday as speculation rose that the chances for a very active hurricane season are high. Plus, there is even more speculation that soon policy makers in Washington are going to start listening to natural gas bulls, such as

T. Boone Pickens

, who argue that natural gas is the best long-term solution -- economically and environmentally -- for solving America's energy problems.

Natural gas futures cooled off on Tuesday, dropping 2.2% following a cooler weather forecast for the U.S. Midwest and Northeast. An explosion in a natural gas pipeline in Texas also pressured prices lower. But if the trend really is strong, these two issues won't be able to keep prices down for long.

The

U.S. Natural Gas Fund

(UNG) - Get Report

recently broken above its 50-day moving average, and it has broken through some previous resistance at around $7.70 a share that held a strangle hold on this ETF for almost three months. The UNG is a pure play on the price of natural gas futures. This technical move is significant and could be marking a new trend higher that is still in the early stages of development.

Even President Obama recently pulled an about-face and endorsed natural gas as a viable alternative to crude oil during a speech last Wednesday at Carnegie Mellon in Pittsburgh,

So if the trend for natural gas is about to turn very bullish, how should you play it?

One natural gas stock that looks very promising is domestic natural gas producer

Chesapeake Energy

(CHK) - Get Report

. One of the reasons to like Chesapeake is that in the past when natural gas prices have risen substantially, this stock has followed the trend. Back in 2007 when natural gas hit almost $14, Chesapeake traded over $60 a share. With the stock now trading at around $23 and natural gas futures prices around $5, you can see the upside could be huge if natural gas makes a big move.

In fact, one analyst at Morningstar believes that if natural gas rose up to $15, shares of Chesapeake would be worth a whopping $80. With the potential for a very active hurricane season, combined with the oil-blackened Gulf, which will heat up the waters and potentially produce stronger storms, you can see why $15 is a real possibility.

This company is also no slouch when it comes to lobbying Washington in favor of its positions on energy. During the first quarter, Chesapeake spent $910,000 on lobbying the federal government on natural gas issues, natural gas vehicles and oil-and-gas-related taxes. The company also lobbied Congress on the controversial practice of hydraulic fracturing.

It's worth noting that Chesapeake controls some of the best-producing properties, with large exposure to the Marcellus Shale as well as the Barnett and Haynesville regions. Things are so good in the Marcellus Shale region that

Royal Dutch Shell

(RDS.A)

just announced it acquired a company with substantial holdings in the Marcellus Shale for $4.7 billion. Chesapeake is highly levered to gas demand, but on the flipside the balance sheet is loaded with debt. That debt might not matter, though, if the uptrend in natural gas has legs and if the company can obtain the proper financing it needs to manage the $12 billion in debt on its balance sheet.

Two speculative names that could be big winners off the adoption of natural gas for the trucking and auto sectors are

Westport Innovations

(WPRT) - Get Report

TheStreet Recommends

and

Clean Energy Fuels

(CLNE) - Get Report

. These companies are clean-tech pure plays poised to benefit from the passing of the climate bill in Washington, which would provide subsidies for the use of natural gas in the trucking industry.

Clean Energy Fuels has been rushing to build dozens of natural gas fueling stations but has yet to make much in the area of profits. That could now change if natural gas continues to rise in price and if the Gulf oil spill can push Washington into action to pass the Climate Bill. It's also worth noting that T. Boone Pickens sits on the board of Clean Energy Fuels and he holds a substantial stake in the stock (view

Pickens' portfolio here

here). Clean Energy sports a respectable 13% short interest and has a very low float of total outstanding shares at 60 million. This stock could see a massive short squeeze if things fall into place.

Westport has inked partnerships with major truck engine makers such as

Cummins

(CMI) - Get Report

, Kenworth, Peterbilt and Volvo to modify traditional truck engines to run on compressed natural gas or liquefied natural gas, giving users an alternative fuel to diesel. Demand is strong, as evidenced by the company's recent earnings report, which showed a 35% jump in quarterly revenue. Westport reported a net loss of $12.2 million for the fourth quarter due to an increase in research and development and sales and marketing costs.

The Westport and Clean Energy Fuels plays will work only if pending legislation is passed, as that should help these firms achieve the scale they need to be profitable and viable business concepts.

From a technical standpoint, Clean Energy has some

support

around $14 a share, and Westport should find some support around the 200-day moving average at $13.57.

For a play on extracting oil from the ground, investors might want to consider

Patterson-UTI Energy

(PTEN) - Get Report

, which owns and operates fleets of land-based drilling rigs and is one of the largest onshore contract drillers in the U.S. Patterson could see a big pickup in demand if more rigs are brought online as producers ramp up production to take advantage of rising natural gas prices. In fact, that demand is already starting to show up, as seen by the company's increase in its rig count average to 155 for May, up from 150 in the previous month.

Shares of Patterson are heavily shorted, currently ranking fifth-highest in short interest for the natural gas/oil equipment service stocks. Its short interest clocks in at 13% of its total outstanding shares. If the bears are forced to cover their positions in this stock as natural gas heats up, the stock could rise sharply.

If you're looking for some natural gas plays that offer some dividend safety, you might want to consider names like

Kinder Morgan Energy Partners

(KMP)

, which yields 6.8%,

Boardwalk Partners

(BWP)

, which yields 7.3%, and

Quicksilver Gas Services

(KGS)

, which yields 8.7%. Keep in mind these companies are natural gas utility partnerships that transport, process and store natural gas over miles and miles of pipelines. These companies run very predictable businesses that simply move natural gas and oil from Point A to Point B. You're most likely not going to see big moves in these stocks if natural gas trends higher, but if your goal is to generate income, these could be just the names you're looking for.

To see more natural gas stock picks like

Devon Energy

(DVN) - Get Report

and

Nabors Industries

(NBR) - Get Report

, check out

top natural gas stock plays

portfolio on Stockpickr.

-- Written by Roberto Pedone in Winderemere, Fla.

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