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Recently Bob Doeden has posted on occasion his thoughts about natural gas
stocks. While this is not technical analysis, Merrill Lynch just mailed an
enclosure with monthly statements that gives a brief discussion on these
stocks.
Because of Bob's interest, and maybe some interest of others on the list, I
thought I would pass these comments along. Please be aware that these
comments are fundamental and not technical in nature, so all pure technicians
stop here.
Natural gas stocks underperformance has created a buying opportunity. They
now are attractive values with good earnings growth. Merger activity should
pick up and give support on the downside, along with lower interest rates and
perhaps seasonably cooler weather. Overall they are trading at discounts to
the stock market on a p/e basis. Smaller gas stocks are likely takeover
candidates for electric utilities and larger gas companies. The past average
premium was 30%. Takeover activity this year to date is down some 90% from
1996 so look for a pickup in mergers soon.
The risks to the group is weather (which cannot be predicted), natural gas
commodity prices (which should be stable through 1999) and interest rates.
If interest rates go lower as many predict, then the above average yields on
gas stocks should make them attractive as total return investments. Higher
rates would probably be a negative.
Their three favorite stocks are KNE, STR and TEJ.
Any conservative or defensive investors out there should perhaps fire up
their charts and take a look see.
Jerry
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