Our investment map shows you where to put your money, industry by industry. Most recently, we added natural gas to the list, but also check out our media, power, food and semiconductor maps if you haven’t already. More industries will be added in the months to come.
The natural gas industry has been through upheaval. There’s upside to come, though. Here are our gas picks:
ENCANA (TSX: ECA)
Lanny Pendill, an Edward Jones portfolio manager, can’t say enough good things about Calgary-based EnCana. It’s a low-cost producer, it’s in four of the five most attractive natural gas basins in North America and it pays a 3.56% yield. He also says the company is sitting on a lot of acreage in emerging gas fields, and its investment-grade credit rating of BBB+ means it’s a low-risk play.
RANGE RESOURCES (NYSE: RRC)
Range Resources, based in Fort Worth, Texas, is a big player in the Marcellus Formation, a large area in New York, Pennsylvania and other neighbouring states that’s expected to produce vast amounts of liquid-rich gas. Scott Vali, a portfolio manager with Signature Global Advisors, says the company owns a lot of land, and because it’s so close to a consuming market—the northeastern U.S.—it doesn’t have to pay heavy tolls to ship it to its final destination.
PAINTED PONY PETROLEUM (TSXV: PPY.A)
Calgary’s Painted Pony Petroleum, a junior oil and gas company, has been a “huge winner,” says Sprott fund manager Eric Nuttall. It recently flowed the highest volume of natural gas ever from a well in the Montney shale formation in B.C. and Alberta. “It’s extremely prolific,” he says. It’s also producing natural gas liquids, which means it makes more money than it would if it just mined methane. It trades at $12, but Nuttall thinks it could soon reach $18 to $20 a share.
MAGNUM HUNTER RESOURCES (NYSE: MHR)
Houston-based Magnum Hunter has three operations in “the United States’ most enviable formations,” says Steffen Torres, a portfolio manager with Kalmar Investments, including five “strong” wells in the Marcellus Formation. It’s trading at about US$4, but Torres thinks it’ll rise to $7. Its capital expenditures have outpaced cash flow, but the company has the ability to grow production by 80% over the next few years, he says.
CHICAGO BRIDGE AND IRON CO. (NYSE: CBI)
It’s not a gas producer, but buying this Amsterdam-based engineering and construction company is another way to play the natural gas market. CB&I has designed numerous liquefied natural gas plants around the world, and with demand for LNG conversion facilities rising in North America, Torres thinks it’s poised to make huge profits. “Their backlog is increasing,” he says. It seems others agree with Torres; the firm’s stock price has risen by 10% year-to-date.
Looking for affordable utilities? Consider these international stocks:
CEZ Group (WSE: CEZ)
Prague-based CEZ Group is an eclectic company that supplies power to numerous European countries. With the German government planning to take its nuclear power plants offline by 2022, CEZ Group will likely have to supply even more power to its giant neighbour. It’s trading at 12 times next year’s projected earnings—“not excessive at all,” says MFS Investment Management’s Mike Nickolini—and pays a 5% dividend.
NRG Energy (NYSE: NRG)
NRG Energy, a Princeton, N.J.–based independent power producer that sells energy to other companies, has a very low cost and low emissions portfolio, says Morningstar’s Travis Miller. Unlike most utilities, it doesn’t pay a dividend, but with many expecting electricity prices to rise, Miller doesn’t think the lack of income is a problem. “You’re buying it for the growth,” he says. The stock price is US$23, but Miller thinks it should hit $35 in the next three to five years.
National Grid (NYSE: NGG)
London’s National Grid is one of the few regulated utilities that has strong growth prospects, says Miller. While it’s based in the United Kingdom, and has 11 million English customers, it also has 3.3 million clients in several U.S. states. The U.K. has one of the more favourable regulatory regimes, says Miller, so the company can usually adjust prices if need be. It has a 6% yield, and the stock price should climb from the US$48 it’s at now to $51, he says.
RWE AG (ETR: RWE)
Essen, Germany–based RWE AG has seen its stock price plummet 32% year-to-date but, says Raschkowan, that’s mostly due the negative sentiment surrounding Europe. “People have gotten too pessimistic,” he says. The fact that it’s located in one of the region’s strongest countries is a plus. Thanks to Europe’s debt problems, the company is cheap, trading at 8.1 times estimated earnings, while its gross yield is 9.4%.
Duke Energy Corp. (NYSE: DUK)
Charlotte, N.C.–based Duke Energy is also a regulated company, but the places it operates in—North and South Carolina, Ohio and Kentucky—aren’t as strict as other states when it comes to raising prices, says Raschkowan. He admits that regulation is an issue, but Duke’s attractive 5.4% yield, reasonable 13.6 times 2011 earnings valuation and growth potential makes it a good long-term buy.
Semiconductors are a volatile business, but do your homework and you can find cheap buys. Some suggestions:
Entropic Communications (NASDAQ: ENTR)
This San Diego company is tapping into the growing home-networking business. It builds the chips that allow people to connect their DVD, TV and computers to one network. Sprott portfolio manager Peter Hodson says it’s doubling sales this year but it hasn’t yet grabbed the attention of the herd. It’s trading at nine times earnings, has an 80% share of its market niche and a $700-million market cap. “It’s dying to be taken over,” he says.
Intel Corp. (NASDAQ: INTC)
Intel, based in Santa Clara, Calif., is easily the world’s most famous semiconductor company. It manufactures microprocessors, motherboards, wireless products and more. It’s trading at nine times earnings because, says Hodson, “people hate it.” There’s a perception that it’s missing the boat—it’s not big in the tablet market right now—but it has so much cash it could easily make an acquisition to get into that field. “It’s like Starbucks four years ago,” says Hodson. “Everyone thought it was over, but it’s not.”
Analog Devices (NYSE: ADI)
Analog Devices, based in Norwood, Mass., has its fingers in a lot of pies, but it’s the business of making chips for cellular networks that Tera Capital’s Howard Sutton likes best. It’s not the cheapest stock of the bunch, trading at 14 times earnings, but with more cellular base stations still needed to be built, growth is a given. “If you believe in the expansion of cellular networks, then this is their area of expertise,” says Sutton.
GT Solar (NASDAQ: SOLR)
Kevin Landis, a Firsthand Funds portfolio manager, likes the solar business. Most solar cells use silicon semiconductors, and the more attention paid to the alternative energy, the more these chips will be in demand. GT Solar, based in Merrimack, N.H., is one of his favourites. The company is selling out of product, growing quickly and trading at a cheap nine times earnings.
Hoya Corp. (TYO: 7741)
Investors looking to play Japan’s volatility should consider this company. It holds 80% of the global market for mask blanks, a piece of glass that’s integral to semiconductor production. It also has a health-care division and makes medical imaging devices, so it’s more diversified than most chipmakers. The stock price is down 11% since the earthquake, but according to the company, its supply and production haven’t been affected.