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XMFSinchiruna (26.54)

Discover Royal Returns in Natural Gas



August 25, 2009 – Comments (5)

I hope you enjoy my latest anlysis of the natural gas sector, and my carefully selected pick for a winning play in this crowded space.

I still come across a lot of interest in UNG here in the CAPS arena. There are plenty of compromised paper investment vehicles out there that I consider unfit for investing, but in its present state UNG has to rank right up there among the most dangerous. The lower ng prices go, the more tempting it will be to play the UNG knife-catching game. Please think twice, or even thrice, before doing so ... and at the very least know that a purchase of UNG shares is akin to playing a single number on a roullette wheel.

The E&P's are too rich for my blood at these levels ... I'm in agreement with Toby that we'll want to see a little more pessimism baked into the cake before these ng plays are ready for real money again. Simply stated, their share prices and natural gas prices have been moving in opposite directions for too many consecutive months ... an untenable situation of its own. I have companies like XTO on my watchlist for a future CAPS pick, and may even repurchase some shares on a strong dip, but otherwise I'm happy sticking with my income plays.

Income plays that I've highlighted before will also remain front and center on my radar. I find Energy Transfer Partners and Kinder Morgan both to be excellent companies with impressive growth prospects alongside that alluring income. As with the E&Ps though, I could see a bit of a correctionas natgas prices continue in near-term weakness before commencing a recovery.

The company I'm recommending for consideration is not widely followed, but I've owned this one since 2006. I believe it has adapted to difficult circumstances effectively, possesses a solid balance sheet, practices conservative payout practices while paying a 10% yield (low payout ratio relative to peers), and is committed to maintaining an income focus as it restructures prior to the change in Canadian tax law. With strategic acreage in the Marcellus shale, and a 60% weighting of natgas to total production, Enerplus Resources Fundfeels like a natural choice.

I'd love to know what you think of the CanRoys, your thoughts on my pick Enerplus, or your own favorite choices for natural gas. Sub-$3 prices will not last too terribly long, and the eventual recovery I believe will be rather swift when it commences. Are you invested?

Thanks for the discussion!

5 Comments – Post Your Own

#1) On August 25, 2009 at 5:05 PM, portefeuille (98.32) wrote:

Well, my oil&gas "specialist" (or maybe just the one with the greatest amount of luck, hehe) player appears to be portefeuille7.



My favourite ones are maybe Gazprom and ATPG.

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#2) On August 25, 2009 at 5:19 PM, Starfirenv (< 20) wrote:

I own LINE.
Div- 11.6%
P/E- 1.36
EPS- 15.88

Got in $14.ish and still sitting. I believe nat gas will be a huge part of our future. I've heard that "the US is the middle east of nat gas" and that "we have so much, it's not worth much". Never understood the logic.

Long LINE, CAM, BHI, EXLP, STR (Real Life)

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#3) On August 25, 2009 at 5:25 PM, motleyanimal (39.46) wrote:

LINE is excellent, as is WHX. Canroys may suffer with NG now trading below production cost.

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#4) On August 27, 2009 at 4:37 AM, GeneralDemon (26.17) wrote:

How about AAV. Was a canroy, now a company - units were converted to shares one for one. What do you think?

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#5) On September 01, 2009 at 2:12 PM, mustbepatient (< 20) wrote:

Good article, Sinch!  Although maybe I just think that because your thoughts match mine pretty closely :)

In the past I have invested successfully with FEL.TO.  There are several quality NG-focused trusts that trade on the TSX.

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