Stock market and natural gas stocks

Posted onCategoriesnatural gas stocks

A lot of oil and natural gas stocks aren’t doing well on the stock market for the simple reason that underlying commodity prices are down. Natural gas prices, in particular, are down substantially; spot oil below $90.00 a barrel represents an almost bearish outlook on the U.S. economy.

Legacy Oil + Gas Inc. (TSX/LEG) is a small, but growing Canadian energy producer. Even though the company is growing its production, on the stock market, the stock has virtually mimicked oil prices this year. According to the company, its 2012 third-quarter production of barrels of oil equivalent per day (BOEPD) grew 29% to 16,308. Petroleum and natural gas sales, net of royalties, grew 24% to CAD$90.3 million. The company’s stock market chart is below:

Chart courtesy of www.StockCharts.com

Almost always, a producing resource company will see its stock market price trade commensurately with the spot price. It doesn’t matter how good the numbers are or how much the company is growing, if spot oil is trending lower, for the most part, oil stocks won’t be going up. Legacy Oil + Gas is the perfect example of a growing business whose share price is stuck because of spot prices.

One fast growing oil and gas producer you want to keep on your radar screen is Kodiak Oil & Gas Corp. (NYSE/KOG). The stock recently climbed out of penny stock status, because the company is now very successful and has strong interest from institutional investors.

Kodiak Oil & Gas is a company that’s growing. In 2009, total revenues were $11.0 million. The next year, they grew to $31.0 million. Last year, the company’s revenues were $120 million, and this year, the Street predicts revenues will average around $440 million. The company’s stock market chart is featured below:

Chart courtesy of www.StockCharts.com

Stock market and natural gas stocks

On the stock market, Kodiak has performed similarly to Legacy. Along with oil prices, the shares appreciated at the start of the year, then they moved markedly lower on the stock market until June. They spiked higher until mid-October, and are now drifting lower again. All that growth (in earnings as well), but on the stock market, there is no real price trend. This is the nature of investing, or rather speculating, in commodity-related securities. Investment risk includes a lot of factors beyond your control.

U.S. production of oil and natural gas is strong these days because of new technology. But, oil prices are very much a gauge, or barometer, of stock market investor sentiment and the U.S. economy. Right now, oil prices to me signal continued mediocrity, with the expectation of slight economic growth, ahead. The only good news to be had with lower oil prices is the prospect of lower gasoline prices. Of course, gasoline prices always seem to rise at a faster rate than they fall. The only way to beat that is to own the company.