In this week’s Macro Theme, we review our “Slowing Dragon” theme. We began discuss...
2 Screaming Natural-Gas Buys
05/31/2012 6:00 am EST
Not only can investors profit on the development of natural-gas infrastructure in the US, but that infrastructure will make that gas more valuable, says Doug Fabian, who shares two picks.
Doug, now is a good time to get involved in natural gas?
Well, I'll tell you, natural gas is an unbelievable opportunity for our country.
I want to begin right there, because when you look at what has happened in the past couple of years in terms of technology, a new technology has allowed us to be able to access natural gas like never before. So the reason that natural gas is at decade lows is because we have an abundance of supply now in the United States.
Just to give you a price comparison, we are at approximately $2, a little bit above $2, per BTU of natural-gas prices in the United States. The price in Germany is $15. The price is Japan is $15. So we have a tremendous edge from a manufacturing standpoint comparing these two other countries to what we have in the United States today.
What we lack is we lack the infrastructure to be able to access the natural gas. For instance, you cannot easily put natural gas in your car. You can convert your car to natural gas, but there is no place to fill it up.
Right. Small problem.
But five years from now, that will be no problem.
And so that’s part of the opportunity. It’s the build-out of the natural-gas infrastructure, and the fact that we’re going to be using so much more natural gas, which is clean burning, good for the environment, and so advantageous for us as a country. I think that it just has multiple investment opportunities.
So how should the average consumer get involved right now in natural gas?
Well, there are really three ways that I see that you can play. You can play in individual stocksâ€"that’s not my specialty, but obviously that’s an area for investors to just be aware that they should be out looking for natural-gas opportunities through individual stocks.
My specialty is exchange traded funds, and there is a new ETF, the Market Vectors Unconventional Oil & Gas ETF (FRAK). That [ticker symbol] is for the type of technology they use to extract natural gas from the ground, from these deposits, these deep deposits. This ETF invests in about 40 stocks that are all tied to unconventional oil and gas development, and so that’s an easy way to play it.
Now for the income investor, there are natural-gas royalty trusts. These are companies that own mineral rights that sell off their production each month, and they pay a dividend.
My favorite play there is the San Juan Trust (SJT). It has a 5.5% yield at a $2 natural gas price. If natural gas goes to $4, we will have about an 8% yield, and we have the potential for price appreciation as well. So, a couple of ways to play through ETFs and through the royalty trusts.
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