It goes without saying that natural gas/oil plays are favored in this neck of the woods.
And with good reason: natural gas and oil, which, by the way, was down (but only briefly), and never out -- will represent preferred U.S. energy sources for at least the next decade. And with the aforementioned in mind Southwestern Energy Co. (NYSE: SWN) is worth a review.
In general, analysts are impressed by Southwestern's low-cost producer status, with average finding and development costs of $153 per Mcfe (million cubic feet ) in FY2008.
Further, analysts see 40-55% production growth in FY2009 from SWN's key Fayetteville Shale property, which currently produces 850 MMcfe (million cubic feet equivalent). The Marcellus and Haynesvilles sites also look promising to analysts.
Other positives: SWN has about 2.19 Tcfe (trillion cubic feet) of estimated proved reserves, of which 100% was proved natural gas and 62% was proved developed in late FY2008.
The risks are obvious enough: low natural gas prices or a continued U.S. recession would send SWN's revenue tumbling. The First Call FY2009/FY2010 EPS estimates for SWN are $1.60 to $2.16. But natural gas's long-term role in electric power generation and the company's demonstrated proficiency dip the scale in favor of Buy.
Stock Analysis: Southwestern Energy is a moderate-risk stock. Consider buying a 25% position in SWN now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your SWN position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
6-06-2009 @ 8:42PM
JP said...
It's tough to say whether the bottom is in for nat gas, although SWN is close to its July 2008 high, when nat gas peaked at $14.72, and nat gas is currently $3.88. If you're looking for a play, pick up cheap nat gas REIT's.
Don't forget it's all about price, and price is simply a reflective behavior of human beings, who, when they have enough time and information, will grab a bargain when they see one.
6-08-2009 @ 2:58PM
Iridium said...
Go ahead make money by causing harm to others. Make money on something based on pure speculation rather than the actual cost of pulling it out of the ground.
The price of natural cag, coal, and oil should be based on actual production costs.
If I decided to value my company's products like oil and gas I should be able to sell a product manufactured for $1 for $500.
Maybe we should price corporations and forcast earnings based on a fair price, perhaps during an economic boom that wasn't fueled by massive leverage and speculation by people that never should have been allowed in the game.
Just a thought. It may not be the best advice to make a quick buck but it is the best advice for a viable economy.