Natural Gas Cheap Against Coal and Gold
Commodities / Natural Gas Oct 03, 2010 - 05:14 AM GMTBy: DailyWealth
Matt Badiali writes: This week, investors closed out their best September since 1939...
The Dow Industrials climbed 7.7%... gold and silver soared to multi-decade highs... and commodities in general had their best September since 1956.
These extreme moves make it difficult to find extraordinary bargains in stocks and commodities... to invest with maximum safety.
Fortunately, there's still one asset out there that qualifies as "super cheap"...
When looking for value in resource stocks, it helps to compare various commodities to each other. For example, I like to see how the prices of coal and natural gas stack up. Since both commodities are used to fire electrical power plants, they can be valued against each other.
As this chart below shows, natural gas is cheap versus coal. When the ratio is greater than 0.8, we're in "cheap gas" territory. Today, the ratio is 0.9.
.gif)
I also like to compare natural gas with gold. This allows us to view the value of natural gas in terms of "real money"... not the paper kind the governments can debase at will.
Natural gas became extremely cheap relative to gold back in September 2009. It then staged a huge rally. But in the past few months, rising gold prices plus weak natural gas prices have returned this ratio to "cheap gas" levels.
Typically, when a million cubic feet of gas is worth less than five ounces of gold, we're in "cheap gas" territory. Today, the ratio is 2.9 ounces per million cubic feet of gas.
.gif)
If you're not finding terrific values in stocks and commodities after their huge September surge, I encourage you to check out natural gas. It's cheap relative to other energy sources, and it's cheap relative to gold. It's cheap relative to anything, really.
You can buy beaten down gas producers like Chesapeake Energy (CHK) or Ultra Petroluem (UPL) to profit on this idea. If natural gas simply gets a little "less cheap," you could make fast double-digit gains.
But my favorite way to play this situation can provide investors with a safe stream of passive income. I'm talking about natural gas trusts. Trusts aren't your typical energy company with thousands of employees. They're basically land packages with producing oil and gas wells on them... and they enjoy a special corporate structure that allows them to pass along the bulk of their revenues on to their shareholders.
Even with gas prices in the dumps, a lot of these stocks are set up so they can offer terrific yields. Many pay income in the 5%-10% range.
Good investing,
Matt Badiali
P.S. As I mentioned, owning income-producing trusts is the no-brainer move to make here. With the right stocks, you'll collect fat monthly cash distributions without the stress of trading in and out of exploration companies. You can learn more about this idea from this simple video we've prepared here.
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Daily Wealth Archive |
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
