I hate to say “I told you so,” but…
A few months ago, I wrote that if natural gas prices fell into the low $3s, it would be time to buy.
Sure enough, after prices dropped to the mid $3s (and not a penny lower), they rallied – hitting $4.13 last week. That represents the first solid break over $4 since July.
As a result, two stocks that we’ve covered in the sector – Basic Energy Services (BAS) and Chesapeake Energy (CHK) – blasted higher.
[ad#Google Adsense 336×280-IA]They were recently up 40% and 16%, respectively.
But don’t worry, there’s still time to get on board if you haven’t locked in profits already.
You see, both stocks have since settled back after their recent run-ups.
In other words, now is the time to act.
Here’s a quick rundown of where each company stands…
The Pick-and-Shovel Play
As a services provider, Basic Energy is involved in every aspect of the drilling and production process. So the company is dependent on natural gas prices for its future profits.
When prices stay high, more rigs and services are required. When prices are low, few new rigs are put into production, and service is often deferred. As a result, competing companies are more likely to bid fiercely for available business.
So now that gas prices are trending higher – with a solid base of support in the mid $3s – Basic’s outlook is certainly bright.
Indeed, shares are trading in quite a nice range, with strong support in the $11-to-$13 range and resistance at the mid $17s.
If you see shares pull back to the lower end of the range, it’s time to buy!
Chesapeake is a longtime recommendation for Oil & Energy Daily readers. We’ve been covering the company since early 2012. And in February of this year, I urged you to get on board when CEO Aubrey McClendon announced his resignation.
Shares are trading about 30% higher since that time – and have jumped over 50% at one point.
The company has managed to beat estimates every quarter this year because it has exposure to oil and natural gas liquids, which have been trading at much more profitable levels than the gas itself.
Now, if natural gas continues to power higher (as we believe it will in the coming years), Chesapeake Energy (CHK) could see its share price move 50% higher – since it will be able to lock in prices that are 50% to 70% higher in the futures markets for production.
Ultimately, anything it makes over $4 per thousand cubic feet (mcf) will translate into pure profits.
So if you’re looking for a pure-play on natural gas – along with an oil and liquids kicker – CHK should be in your portfolio.
Bottom line: Speaking of natural gas at $4, the commodity should begin to trade in the $4 range more frequently in the coming months. And in the next issue of Oil & Energy Daily, I’ll tell you exactly why.
And “the chase” continues,
Source: Oil & Energy Daily