Natural gas prices have had an up and down January — taking Club stock Coterra Energy along for the wild ride. After rising more than 30% over the first two weeks of the year, natural gas futures plunged 24% last week and have continued their fall in recent days. The commodity lost 4% on Monday, but in a volatile session Tuesday settled up 1.3%, at $2.45 per million British thermal units. Nevertheless, nat gas prices remained negative year to date. Early Wednesday, nat gas prices swung higher. Shares of Coterra – whose total revenue is split evenly between natural gas and crude oil – gained ground Tuesday to more than $24 each, putting year-to-date declines at less than 3.5%. That performance has been marginally worse than the S & P 500 energy sector over the same stretch. Meanwhile, the broad S & P 500 index has risen roughly 2% in 2024. CTRA .SPX 1M mountain Coterra Energy’s stock price over the past month compared with the S & P 500. Despite some seeing a challenging near-term picture for natural gas prices, our investment outlook on Coterra and the energy sector more broadly remains the same. In a diversified portfolio, it’s worth owning an oil-and-gas stock, partly as a hedge in case there’s a dramatic spike in energy prices, as there was in early 2022 after Russia invaded Ukraine. At this point, Coterra is our company of choice due to its significant exposure to both natural gas and oil, giving it flexibility on production, along with its internal improvements on well productivity to aid profitability — the latter being called out in multiple Wall Street analyst upgrades of the stock in recent weeks. Additionally, the company is committed to returning excess cash to shareholders, with a wise preference on buybacks over variable dividend payouts. It also stands to gain from the expected increases in U.S. liquified natural gas export capacity beginning primarily in 2025. Still, volatile oil and natural gas prices hold sway over Coterra’s near-term stock moves. And the swift reversal of fortunes for natural gas has been hard to ignore. However, some context is necessary when analyzing the swing. “Last week’s meltdown appears so significant because the move higher was, really, from a fundamental perspective completely overdone,” said Eli Rubin, a natural gas analyst at EBW Analytics Group. The commodity was particularly beaten up to end 2023, Rubin said, after one of the warmest Decembers on record limited demand for natural gas to heat homes and other buildings. The warm December added insult to injury amid strong U.S. natural gas production and mild weather throughout the fall, contributing to an oversupplied market. The result is traders had grown quite bearish on natural gas, Rubin said, which created the technical conditions for a dramatic spike in prices if more positive fundamental signs emerged. And they did, in fact, emerge by way of winter storms and bitter-cold temperatures that swept large parts of the U.S., causing a…
Read More: Why natural gas prices are so volatile. What it means for Coterra