Extreme cold hit much of the U.S. in recent weeks, causing heating bills to skyrocket. When this happens, companies in the natural gas business often benefit, as natural gas accounts for the highest percentage of electricity generation in the U.S.
According to the U.S. Energy Information Administration, natural gas accounted for 34% of U.S. electricity generation in 2016, ahead of coal, nuclear, and renewables. Therefore, as many Americans crank up their heat to combat the bitter temperatures, companies in the natural gas industry stand to make more money.
For investors that think natural gas is simply a seasonal investment, that is not necessarily the case. The EIA expects natural gas consumption to climb in 2018 and 2019. On top of that, as coal plants slowly fade away, our reliance on natural gas is likely to increase.
With that said, let's take a look at three companies that run U.S. natural gas businesses that stand to benefit, not only from the cold, but also from the continued importance of natural gas.
1. Marathon MPC
The second-largest U.S. refiner based on crude oil refining capacity is also heavily invested in natural gas after its $15.6 billion acquisition of MarkWest in 2015, and now operates natural gas gathering systems in six states. Marathon is currently a Zacks Rank #1 (Strong Buy) and rocks an "A" VGM grade, supported by "A" grades for Value and Growth in our Style Scores system.
Most of the harsh winter won't be reflected in the company's upcoming Q4 results. However, looking ahead to the first quarter of 2018, Marathon is projected to see its earnings climb by 983% to hit $0.65 per share, based on our current Zacks Consensus Estimates. On top of that, the company's sales are expected to surge from $16.39 billion in the year-ago period to $21.23 billion.
Looking even further down the road, Marathon is expected to expand its EPS figures at an annualized rate of 14.24% over the next three to five years, driven in part by the continued growth of natural gas.
2. Cabot Oil & Gas Corporation COG
This Houston-based company is engaged in the development, exploitation, and exploration of oil and gas exclusively in the continental U.S. Cabot produces and also buys natural gas for resale throughout the U.S. Therefore, Cabot stands to benefit greatly from increased natural gas consumption in the U.S. The stock is currently a Zacks Rank #1 (Strong Buy), boasting "A" grades for both Growth and Momentum.
Cabot is projected to see its sales jump by over 37% in Q4, while its bottom-line is projected to expand by 1,200%. The brutal weather is somewhat reflected in these growth projections. But investors should also be very happy to note that Cabot is expected to expand its EPS figures at a annualized rate of 30% over the next three to five years, as the use of natural gas goes up in the U.S.
3. BHP Billiton Limited BHP
BHP, which operates throughout the world, is diversified across an array of minerals, as well as conventional and unconventional oil and gas operations. The firm's U.S. operations include major natural gas production.
BHP is currently a Zacks Rank #1 (Strong Buy) and sports "B" grades for both Value and Momentum. Looking ahead to its current full-year, which BHP is slated to report in late June, the company is projected to see its sales soar 43% year-over-year to hit $44.23 billion. As far as bottom-line expansion goes, BHP is expected to see its EPS figures pop by nearly 21%.
What's more, the company's current cash flow growth rate of 46% crushes its industry's average and should theoretically help the firm invest in new operations in order to follow the money and production demand-which in the U.S., at least, points to natural gas.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report BHP Billiton Limited (BHP): Free Stock Analysis Report Marathon Petroleum Corporation (MPC): Free Stock Analysis Report Cabot Oil & Gas Corporation (COG): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research