EnCana (ECA) is my top choice as a natural gas investment. Long-term investors should be well rewarded for buying the stock at its current low price.For the near-term, the abundance of natural gas is actually a problem for the industry. During the past two years, there has been a revolution in the ability to extract natural gas from shale deposits, of which the US and Canada have huge quantities.
Prevoiusly, explosives and high pressure water cracked the shale well enough to allow the gas to escape, but the fractures didn't remain open very long.
Then, a couple of natural gas drillers tried putting sand in the water. The sand kept the fissures open, allowing the gas to flow freely. What a simple solution.
Now, North America should have enough natural gas to last at least a century -- a probably longer.
Even more important for investors, countless energy users, from huge electric utilities to individual homeowners, are switching to natural gas from much more expensive coal and oil.
There is also increasing demand for natural gas as a transportation fuel. UPS already uses it in most of its trucks. So do many municipal fleets.
As with any commodity, rising demand leads to rising prices. Unless we find some miracle energy source I think long-term prosperity for the natural gas industry -- and its investors -- is assured.
EnCana is the second largest supplier in the industry, and it appears to have the best management.The company also has more natural gas deposits in North America than either Chesapeake Energy or EOG Resources. The company has less debt than most of its competitors.
Lastly, EnCana is a pure play on natural gas. In December of last year, the company spun off its oil sands business.
Investors didn't like the move, and they abandoned the stock. But management can now focus all its resources on the company's core business, which I think will pay off handsomely.
We are double-dippers with this stock. I first recommends ECA in December 2006, when it was selling at $47.47. By April 2008, the price reached $94.10. It dropped back when the energy bubble burst.
However, the stock held its own throughout the long recession, which shows it has a lot of underlying support. It is time to buy EnCana again.
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