My Top Pick in 2019 was Brookfield Renewable Partners (BEP); investor appetite for high yielding renewable energy stocks sent the shares soaring, up over 80%, notes Roger Conrad. The editor of Conrad's Utility Forecaster now rates those shares a "hold" and turns to a natural gas producer as a new Top Pick for 2020.

At National Fuel Gas (NFG), keeping operations conservative is management’s basic DNA. The mid-point of company guidance for fiscal 2020 earnings (end Sept 30) is now $3.15 per share, down from an initial projection of $3.40. That’s due to reduced expectations for natural gas prices.

Nonetheless, cost control from tight integration between production and gathering will support 15 percent higher output this year, followed by “single digits” in FY2021. The company also raised proved oil and gas reserves by 23 percent in the last 12 months.

While others fell prey to Wall Street’s push to divest regulated utility and midstream assets during the boom times earlier in the decade, NFG stayed united and integrated. The result is solid 1.8 times coverage of the still-growing dividend over the past 12 months, along with a BBB credit rating and stable outlook.

Regulated utility and pipeline infrastructure contributed roughly 63 percent of FY2019 earnings, essentially covering the dividend on their own with room to spare. And with $270 to $315 million targeted for system investment, their contribution will grow the next several years, offsetting any future weakness in natural gas prices.

Management also continues to boost the balance sheet with opportunistic debt retirement and refinancing, slashing interest expense by 10.3 percent in the last 12 months.

On a valuation basis, National Fuel is cheap relative to the overall market, selling for just 14.9 times the mid-point of FY2020 guidance. That’s typical of energy stocks, whose underperformance has shrunk the sector to just 5 percent of the S&P 500 from 15 percent a decade ago.

As recently as April of this year, National Fuel shares traded in the low 60s. We expect a return to that level this year, as regional natural gas prices stabilize and bargain hunters return to the sector, in search of low valuation stocks.

The big difference between National Fuel Gas and other energy companies is its unique business model has repeatedly proven its resiliency in tough times. Management has also locked in prices for 87 percent of its expected FY2020 output, meaning stable earnings even if gas prices should fall further.

There’s also the potential for a takeover of the company from its modest current market capitalization of only around $4 billion. Buy National Fuel Gas at $55 or lower.

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