- Geopolitical flashpoints and high prices put a spotlight on the best natural gas stocks to buy.
- Black Stone Minerals (BSM): Black Stone is a hot name with a hot dividend.
- Matador Resources (MTDR): Matador’s exploration business fires on all cylinders.
- Pioneer Natural Resources (PXD): Pioneer brings great metrics, but you pay for it.
- Texas Pacific Land (TPL): While Texas Pacific carries a hot premium, it also has zero debt.
- Canadian Natural Resources (CNQ): Canadian Natural represents an all-around solid wager.
- Woodside Energy (WDS): Woodside Energy is a quality business that’s arguably undervalued.
- Diamondback Energy (FANG): Another undervalued idea, Diamondback Energy brings strong growth and profits.
With geopolitical dynamics sparking a radical paradigm shift in the hydrocarbon energy space, it’s time to consider the best natural gas stocks to buy now. Fundamentally, one of the main catalysts – if not the catalyst – for higher energy prices centers on Russia’s invasion of Ukraine. It’s not just about the military action itself, but rather Moscow’s decision to cut hydrocarbon outflows to Europe.
As a result, Europe’s allies must step up to the plate, providing supplies to meet the region’s needs. Of course, such measures necessarily reduce global supplies, thus raising demand. About the only beneficiaries of this circumstance are – you guessed it – stakeholders of the best natural gas stocks to buy.
Additionally, monetary dynamics such as skyrocketing inflation also boosted energy prices. While the Federal Reserve attempts to control inflation through interest rate hikes, demand may outstrip such measures. This will be especially true if the U.S. and Europe face a cold winter.
To filter out the best natural gas stocks to buy from the merely good, I used Gurufocus to help identify low-risk enterprises. Below are market ideas you should put on your radar.
Data last updated: October 26, 2022 1:40 AM EDT
|BSM||Black Stone Minerals LP||$17.74|
|MTDR||Matador Resources Company||$68.22|
|PXD||Pioneer Natural Resources||$267.79|
|TPL||Texas Pacific Land Trust||$2168.50|
|CNQ||Canadian Natural Resources Limited||$59.47|
Best Natural Gas Stocks: Black Stone Minerals (BSM)
Based in Houston, Texas, Black Stone Minerals (NYSE:BSM) focuses on acquiring diverse mineral and royalty assets. So far, the unique dynamics of the post-pandemic new normal benefitted Black Stone handsomely. Since the start of the year, BSM gained 65% of equity value. Currently, the company features a market capitalization of $3.7 billion.
One of the immediately attractive qualities of Black Stone centers on its dividend. While the hydrocarbon space carries a reputation for generous passive income opportunities, BSM stands above most of its peers. With a forward yield of 10.2%, it rates well above the energy sector’s average yield of 4.24%. Still, with a payout ratio of 83.6%, sustainability questions will cloud this dividend.
Nevertheless, Black Stone represents one of the best natural gas stocks to buy because of its robust balance sheet and strong growth metrics. Specifically, its net margin of 60.3% ranks above 93% of the industry. However, investors will be paying a premium for BSM. Still, it’s worth noting the tremendous momentum that quality hydrocarbon companies enjoy.
Matador Resources (MTDR)
Based in Dallas, Texas, Matador Resources (NYSE:MTDR) plies its trade in the exploration side of the hydrocarbon space. Since the start of this year, MTDR gained a staggering 74%. Just in the trailing month alone, shares swung up 49%. At time of writing, Matador features a market cap of $8 billion.
Let’s get the bad news out of the way first. According to Gurufocus’s proprietary calculations, Matador rates as a “modestly overvalued” business. That could be so based on the company’s price-to-book ratio, which stands well above the industry median at 3.12 times. However, it’s worth noting that Matador’s forward price-earnings ratio is only 5.3 times, below the industry median of 6.6 times.
Now, onto the main reasons why MTDR ranks among the best natural gas stocks to buy. On the top line, Matador features a three-year revenue growth rate of 20.8%, beating out 87% of its peers. On the bottom line, Matador has a net margin of nearly 41%. That’s exponentially above the industry median of 3.87%.
Best Natural Gas Stocks: Pioneer Natural Resources (PXD)
Headquartered in Irving, Texas, Pioneer Natural Resources (NYSE:PXD) specializes in hydrocarbon exploration. Since the January opener, PXD gained a very healthy 42%. Near-term momentum is also red hot. In the trailing month, PXD shot up 29%. At the moment, Pioneer commands a market cap of $63.4 billion.
According to Gurufocus, Pioneer rates as a “modestly overvalued” business. Against traditional metrics such as price-to-earnings (P/E) ratios, PXD carries a premium, though it’s not too terrible. However, against the Shiller P/E ratio of 72.9 times, PXD certainly does carry a massive premium relative to the industry. Still, it’s a hot sector so it’s not entirely unexpected.
That said, investors get plenty for their money. First, Pioneer enjoys a stout and stable balance sheet with low bankruptcy probability based on its Altman Z-Score. From there, it enjoys strong growth potential, with a three-year revenue growth rate that beats out 75% of the competition. Finally, Pioneer’s net margin of 26% ranks better than 80% of its peers.
Texas Pacific Land (TPL)
Representing a publicly traded real estate operating company, Texas Pacific Land (NYSE:TPL) owns about 880,000 acres in West Texas. It happens to be one of the largest private landowners in Texas, focusing on various hydrocarbon projects. Since the start of this year, TPL gained a staggering 70.3%. In addition, it’s on a roll recently, shooting up over 33% in the trailing month.
To be upfront, Gurufocus labels shares as “significantly overvalued,” warning investors they’ll pay a premium for this growth trajectory. On paper, TPL trades hands at over 40 times forward earnings. In contrast, the median level sits at only 6.6 times. Nevertheless, Texas Pacific stands among the best natural gas stocks to buy for its excellent financial strengths.
Take the balance sheet as an example. With zero debt and an astronomical Altman Z-Score, Texas Pacific is about as clear of bankruptcy risk as you can get. Further, the company features excellent growth metrics, including a three-year revenue growth rate of 14.7% (better than 82% of its peers.)
Finally, Texas Pacific has a return on equity of nearly 60%. With the median stat hitting only 7.4%, Texas Pacific enjoys a very high-quality business.
Best Natural Gas Stocks: Canadian Natural Resources (CNQ)
If you’re looking for a broadly balanced opportunity among the best natural gas stocks to buy, you should consider Canadian Natural Resources (NYSE:CNQ). A senior oil and natural gas firm, CNQ shares gained over 37% since the beginning of this year. In the trailing month, CNQ shot up 32%. Presently, the company features a market cap of $68.5 billion.
Notably, Canadian Natural Resources provides a forward yield of 4%. To be sure, this rates a bit below the sector average yield of 4.2%. As well, it has no consecutive years of dividend increases. However, the payout ratio sits at a little above 30%. This reflects far less sustainability concerns regarding the passive income, making it attractive for conservative investors.
Per Gurufocus, CNQ represents a “fairly valued” investment. You’re not going to find too many complaints about this assessment, featuring middling rankings for earnings multiples. However, the company enjoys a decently stable balance sheet. Additionally, it ranks strongly for growth and profitability. Finally, CNQ is a high-quality business with a return on equity of 30.7%. Overall, it’s one of the best natural gas stocks you’ll find.
Woodside Energy (WDS)
Based in Australia, Woodside Energy (NYSE:WDS) is an oil and gas production firm. Since the start of 2022, WDS shares shot up 43%. Interestingly, momentum is on its side. Over the trailing month, Woodside’s equity value bounced up over 18%. In the trailing five days, WDS gained nearly 10%. At the moment, the company features a market cap of $43.5 billion.
Per Gurufocus, Woodside’s business is “significantly undervalued” based on proprietary calculations. Against traditional metrics, it doesn’t seem particularly undervalued, though its enterprise value (EV)-to-forward EBITDA is 2.64 (whereas the industry median is 4.41.)
More notably, the company enjoys a stout balance sheet with a strong cash-to-debt ratio. As well, its three-year revenue growth rate of 8.3% ranks better than nearly 72% of its peers.
On the profitability side, WDS has a net margin of 31.7%, better than over 84% of the industry. Finally, its return on equity of 17% reflects a quality business.
Best Natural Gas Stocks: Diamondback Energy (FANG)
A hydrocarbon specialist headquartered in Midland, Texas, Diamondback Energy (NASDAQ:FANG) focuses on exploration. It’s involved in petroleum, natural gas and natural gas liquids, or NGLs. Since the beginning of this year, FANG gained a healthy 37% of equity value. In the trailing month, shares zoomed up almost 38%. Presently, the company has a market cap of $27.2 billion.
According to Gurufocus, FANG is a “modestly undervalued” investment. At time of writing, its P/E ratio is 7.2 times. This rates favorably below the industry median of nearly 9 times. However, the company really attracts attention as one of the best natural gas stocks to buy for its strong growth and profitability metrics.
Currently, its three-year revenue growth rate is 22.7%. Further, its three-year EBITDA growth rate stands at 12.5%, better than 61.5% of the industry. On the bottom line, Diamondback’s net margin stands at a whopping 42.2%, superior to nearly 90% of its peers.
This post originally appeared at InvestorPlace.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.