It turns out oil companies are behind natural gas. It is, after all, another fossil fuel that is found with oil. However, in the coming natural gas economy, the only companies discussed are smaller ones that have the highest potential, though you can understand why investors want companies with the highest potential. Still, there is potential in the big players as well.
King of fossil fuels
Exxon Mobil Corporation (NYSE:XOM) is the number one producer of natural gas in the U.S. Oil is still the major concern, and I think recent issues regarding oil will open a window for oil stocks. Nothing says buy this than short-term declines in a key commodity and a round of short-sighted downgrades based on that decline. It is absurd that a reactionary downgrade due to a decline in the share price of a company causes further decline in the share price. Once the winds change, opportunity exists. This is oversimplifying the matter as Exxon does have a couple of problems related to growth, which I see as more of a price of oil problem though most cite volumes as well.
Exxon Mobil Corporation (NYSE:XOM) is not even the kind of company that you look at for the short-term. Even a year is too fast for a turnaround. You should look to the three-year picture. Demand might be minimal right now because the economy is not growing as fast as most would like, but that does not mean it will stay that way. The stock might be headed lower in the near-term, which should send the PE even lower. Exxon has a huge net income of $45 billion, but it is no secret how profitable oil companies are.
Oil might not have the best outlook, but natural gas seems to be on the rise. That should help Exxon Mobil Corporation (NYSE:XOM). It is still primarily an oil company. The reason I think it should be watched is because there is a chance to pit the short-term against the long-term. Where do you see the price of oil in five years? Well, in the mean time, Exxon Mobil Corporation (NYSE:XOM) is still making a ton of money and has a dividend yield of 2.90% at current prices, so once the stock is low enough, it is definitely a buy. Hopefully, the bad news will continue to flow for a bit longer to give a solid entry.
Natural gas companies diversify
Exxon is facing pressure on concerns about oil. Concerns about natural gas have led Linn Energy LLC (NASDAQ:LINE) to acquire Berry Petroleum. Linn Energy LLC (NASDAQ:LINE) has been flat for two years. It had positive earnings for most of the time, but has slipped into the red recently. The share price has not reacted. When it does start moving I think it will be a very impressive move. My instincts are telling me that the direction will be up, but there is no way of knowing. Diversity provides stability, but not while the secondary business is very small. Even for Exxon Mobil Corporation (NYSE:XOM), natural gas is a small part of it despite it being the leader. Oil is king there.
Even though I want Linn to do something other than hover around $38, it is understandable. Linn Energy LLC (NASDAQ:LINE) is a dividend stock with a dividend yield over 8%. That is not bad. Natural gas is headed up, and getting that dividend in the mean time is not bad. There are a lot of factors that could squeeze the price of natural gas upwards. There are a ton of production facilities going online, and the push to natural gas in the U.S. is gaining steam. However, it is not certain that the move to natural gas is imminent. Linn Energy LLC (NASDAQ:LINE) is now about 50% natural gas and 50% oil. It actually leans more towards oil plus natural gas liquids, but the minutiae is not important. Linn Energy LLC (NASDAQ:LINE) is diversity.