Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

When to Invest in Companies Hurt by Low Natural Gas Prices: Chesapeake Energy Corporation (CHK) and More

Sir Issac Newton’s gravitational theory is summed up in one sentence: What goes up, must come down. When it comes to economic theory, though, we also assume that if the price on a limited commodity goes down, then it must go up at some point. In the case of natural gas prices, companies on both the winning and losing sides of the shale gas boom are anxious to know when the party (or plight) will change. Lets take a quick look at where natural gas prices are, where they are going, and how it should affect your portfolio decision making.

Chesapeake Energy Corporation (NYSE:CHK)

Companies from both sides of the aisle
The shale gas boom of the past 18 months or so has sent reverberations throughout the U.S. energy markets. Without sufficient demand for this product, spot prices went on a steady decline all the way down to 12-year lows back in April of last year. This has has a profound effect on several companies, and not always in a good way. There are three major industries that have been hit the hardest by low natural gas prices: natural gas producers (think Chesapeake Energy Corporation (NYSE:CHK), coal producers (Peabody Energy Corporation (NYSE:BTU)), and utility companies that don’t have many natural gas operations (Exelon Corporation (NYSE:EXC)).

Henry Hub Natural Gas Spot Price Chart

Henry Hub Natural Gas Spot Price data by YCharts.

On the other hand, both chemical companies and manufacturers have had a pretty impressive run thanks to cheap feedstocks. Companies like LyondellBasell Industries NV (NYSE:LYB) and Terra Nitrogen Company, L.P. (NYSE:TNH), which both use natural gas as a feedstock for plastics and nitrogen fertilizers, respectively, have seen impressive margins in these past couple of quarters thanks in large part to these low gas prices.

Henry Hub Natural Gas Spot Price Chart

Henry Hub Natural Gas Spot Price data by YCharts.

Which firms’ activities could lead to price increases?
So how long can we expect natural gas prices to stay down? Surely the prices for a limited resource cannot stay low for long. For this to happen, we will need to see a major uptick in domestic consumption, export volumes, or a combination of both. There is some momentum for both of these directions. Cheniere Energy, Inc. (NYSEMKT:LNG) has locked in long-term contracts to export 2 billion cubic feet per day of natural gas to foreign markets, and both Clean Energy Fuels Corp. (NASDAQ:CLNE) and Westport Innovations Inc. (NASDAQ:WPRT) are spearheading the movement to make natural gas a viable transportation fuel in the U.S. If and when these ideas start to take hold, expect natural gas prices to grow right along with these companies.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.