Top Natural Gas Stocks to Buy in 2017

By Matthew DiLallo Markets Fool.com

The price of natural gas has been on a roller-coaster ride over the past year. Prices plunged below $2 early last year due to oversupply after a warmer-than-expected winter. However, gas rebounded sharply for most of 2016 due to sinking supplies after drillers cut back on new wells, resulting in the first decline in the country's gas output in years.

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However, another warm winter cooled off gas prices in early 2017, causing the stocks of gas producers to slump. That said, there are still ways that investors can make money on natural gas stocks this year, even if gas prices remain low. Here are five natural gas stocks that should thrive in the future thanks to clearly visible growth on the horizon:

Natural Gas Stocks

Ticker Symbol

Enterprise Value

What Makes It a Top Natural Gas Stock?

Cheniere Energy

(NYSEMKT: LNG)

$34.3 billion

Rapidly expanding LNG export capacity

Enterprise Products Partners

(NYSE: EPD)

$82.2 billion

Several gas-related infrastructure projects under construction.

Williams Partners

(NYSE: WPZ)

$58.7 billion

Several billion of gas pipeline projects under development.

Antero Resources

(NYSE: AR)

$13.7 billion

Projecting 20%-plus annual output growth.

Rice Energy

(NYSE: RICE)

$7.2 billion

Nearly 60% output growth in 2017.

Data source: Cheniere Energy, Enterprise Products Partners, Williams Partners, Antero Resources, and Rice Energy.

Image source: Getty Images.

The transformation has begun

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Several years ago, Cheniere Energy saw an opportunity to profit from the growing supplies of cheap natural gas coming out of shale plays by building liquefied natural gas (LNG) export facilities. The company invested billions in this endeavor, which is finally starting to pay off after completing its first two liquefaction trains last year. As a result, Cheniere Energy is on its way toward becoming an LNG export powerhouse.

For 2017, the company expects to finish two more trains that will provide it with a growing stream of cash flow, thanks to the long-term contracts underpinning these facilities. Meanwhile, it has three more trains under construction and several more in development that should grow its natural gas-fueled cash flows for years to come.

Piping hot infrastructure plays

Energy infrastructure companies Enterprise Products Partners and Williams Partners also saw an opportunity to profit from growing gas supplies in the U.S. because it meant that the industry would need more pipelines, processing plants, and other related infrastructure. Enterprise Products Partners focused its attention primarily on natural gas liquids (NGLs), investing billions in building several new pipelines, processing plants, and petrochemical facilities to expand its service network.

The company currently has $7.1 billion of major growth projects under construction, including a major petrochemical facility that will enter service this year and take advantage of low gas prices. As these expansion projects come online, it will drive up the company's cash flow.

Williams Partners, meanwhile, has focused most of its attention on expanding its East Coast interstate gas pipeline, Transco, which will move more gas from production basins to market centers. Currently, the company is working on more than $5.5 billion of expansions to that pipeline and is pursuing 20 additional opportunities across its three interstate gas pipelines.

The company also recently expanded its ability to gather and process gas in the Marcellus shale by completing a deal to increase its ownership stake in two natural gas gathering systems. Like Enterprise, Williams' cash flow should rise as it continues to expand its asset base.

Image source: Getty Images.

Growing just fine

While most gas producers are struggling to grow as a result of lower gas prices, that's not a problem for either Antero Resources or Rice Energy. In Antero's case, it expects output to grow by 20% to 25% this year thanks to its ultra-low-cost resource base in the Marcellus and Utica shale plays, as well as its strong gas hedges. In fact, that combination should enable the company to deliver 20% to 22% annual output growth from 2018 to 2020 while the company lives within cash flow at currently low gas prices.

Rice Energy, meanwhile, expects its production to soar a remarkable 59% this year, due to its recent acquisition of Vantage Energy and its impressive drilling program. Thanks to its low costs and prime position in the Utica and Marcellus shale plays, Rice Energy expects to earn drilling returns of 80% and 100%, respectively, at current gas prices on new wells this year.

Meanwhile, the company has locked in more than 90% of its 2017 cash flow via hedges well above the current price. That gives the company the cash flow and confidence to continue growing despite the recent weakness in the price of gas.

Investor takeaway

What makes these stocks the best options for natural gas investors is that they can thrive at lower gas prices. In the case of Cheniere Energy, Enterprise Products Partners, and Williams Partners, each can succeed no matter what gas prices do because fee-based contracts provide the bulk of their income. Meanwhile, Antero and Rice have top-tier positions in the best shale-gas plays in the country, which, along with robust hedging programs, enable them to grow at lower prices.

While each of these stocks would make a compelling long-term investment, savvy investors might want to consider pairing a gas producer with an infrastructure company. That's because they'd get the upside to higher gas prices, as well as some downside protection from the stable cash flow of the infrastructure assets.

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Matt DiLallo owns shares of Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.