Natural gas distributors are exposed to changes in supply and demand, while most of the natural gas consumption comes from domestic productions. In the fourth quarter, the EIA estimated that natural gas consumption would increase 1.8% in 2011 and 1.7% in 2012, compared with a 5.5% increase in 2010. We are more optimistic about natural gas consumption and believe that this may be a good time to invest in natural gas distributors.
One of best ways of picking a stock is following the holdings of top hedge fund managers. Hedge fund managers are generally the smartest investors in the market. They have the resources to do in-depth analysis of companies and uncover hidden gems. Here we compiled a list of 10 natural gas distribution stocks that hedge funds are bullish about.
| Company | Ticker | No. of HFs |
| Williams Companies Inc. | WMB | 48 |
| El Paso Corporation | EP | 35 |
| Southern Union Company | SUG | 33 |
| UGI Corporation | UGI | 14 |
| Sempra Energy | SRE | 11 |
| Enterprise Products Partners L.P. | EPD | 10 |
| Atlas Energy, L.P. | ATLS | 9 |
| Transcananda Pipelines, Ltd. | TRP | 9 |
| Vectren Corporation | VVC | 9 |
| National Grid Transco, PLC | NGG | 8 |
Williams Companies Inc. (WMB) is the most popular stock in this list. It was in more hedge funds’ portfolios than any other natural gas distribution stocks during the third quarter. The number of hedge funds that held WMB declined to 48 at the end of September from 51 at the end of June. However, total hedge fund investment increased, moving from $2.66 billion to $2.73 billion. James Crichton and Adam Weiss’ Scout Capital Management had the most shares of WMB, with more than 14 million shares. That was after a 145% increase in the firm’s position during Q3. Jeffrey Tannenbaum held a slightly smaller position. His fund boosted its position by 77% and had more than 13 million shares as of the end of September.
Up second comes El Paso Corporation (EP), which was in 35 hedge funds’ portfolios in the third quarter, down from 38 in the second quarter. In contrast, the total hedge fund exposure in the stock increased, from $1.81 billion to $2.51 billion. Carl Icahn became EP’s fan in the third quarter. His Icahn Capital initiated a 66 million share new position during Q3, ranking as the biggest hedge fund stakeholder of the stock (see Carl Icahn’s favorite stocks). Dan Loeb’s Third Point, Jeffrey Tannenbaum’s Fir Tree, and Robert Pitts’ Steadfast Capital Management had comparatively smaller positions in the stock.
Southern Union Company (SUG) is another natural gas distribution stock loved by hedge funds. Hedge fund investment in SUG increased during the third quarter from $1.15 billion spread across 42 hedge funds at the end of June to $1.24 million over 33 hedge funds at the end of September. SUG’s largest hedge fund stakeholder was Michael Lowenstein, whose Kensico Capital had about 5.7 million shares of SUG at the end of September. John Paulson’s Paulson & Co was another large shareholder with 4.27 million shares. Cliff Asness and Jim Simons were also fans of SUG, boosting their positions significantly during Q3 (see billionaire Jim Simons’ top stock picks).
UGI Corporation (UGI), Sempra Energy (SRE), Enterprise Products Partners (EPD), Atlas Energy (ATLS), Transcanada Pipelines Ltd. (TRP), Vectren Corporation (VVC), and National Grid Transco (NGG) were other natural gas distribution stocks held by hedge funds in the third quarter. Although more hedge funds were buying WMB, EP, and SUG, some of the smaller players, such as Atlas Energy (ATLS) and Vectren Corporation (VVC), performed spectacularly. We recommend investors to do an in-depth analysis of these stocks and consider adding them to their portfolios.