The following is from
Kelly Letter Note 55, sent to subscribers first thing in the morning on Sunday, August 16.
We've been watching US Natural Gas (UNG) as a possible buy to track what we believe will be a gradual increase in the price of natural gas when the economy gets back on an earnest growth path.
Several subscribers have written to ask if there isn't a better way to buy into the thesis. UNG, they've read and noticed, has not tracked the price of gas well. One suggested alternative is First Trust ISE-Revere Natural Gas (FCG). Instead of tracking the price of gas itself, FCG tracks an index of companies that earn "a substantial portion of their revenue from the exploration and production of natural gas." For details on the ISE-Revere Natural Gas index and a list of its component stocks, click
here.
We explored in Note 45 sent July 12 whether UNG was better than three natural gas producing stocks, Chesapeake Energy (
), Cheniere Energy (
), and Southwestern Energy (
) in two time periods: December 2007 to end of June 2008, and end of June 2008 to July 10, 2009. The result:
It looks to me that UNG packs all the punch of the stocks, without any of the company risk. We don't need to worry about earnings shenanigans, bad management decisions, bankruptcy, or any of the other common pitfalls of stocks. LNG obviously has problems beyond the price of natural gas, so we can strike it from the list. Against CHK and SWN, UNG performed better in the rising period and has dropped farther in the falling period.
That made UNG look like the best coiled spring in the sector.
