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Cold Snap Warms Up Natural Gas ETFs
Natural gas prices were thwarted by sluggish trends with the energy market rout and a milder winter so far this year. Among the issues hurting the broader energy space, ample supplies and falling demand on global growth worries are primary. This, along with considerably warmer temperature in December (due to a protracted and stronger El Nino) played foul, taking natural gas futures to a 14-year low (read: No Winter Cheer for Natural Gas ETFs?). As a result, most of the exchange traded products tracking natural gas are in red this year defying seasonal strength. Normally, Arctic Chills give life to this commodity every winter. The cold snap boosts electricity demand across the region putting natural gas in focus. In fact, in 2014, the Polar Vortex caused natural gas prices to jump over 50%. Winter Storm Jonas to Rescue This year, the winter storm Jonas recently salvaged this besieged commodity. The whiteout struck on the East Coast, with icy temperatures and a snow emergency bolstering demand for natural gas for a valid reason. As almost 50% of Americans use natural gas for heating purposes, withdrawals in natural gas supplies push up the commodity’s prices. The U.S. Energy Information Administration also gave same cues on Thursday when it declared the largest weekly drawdown of gas from storage this winter, as per Wall Street Journal. Natural-gas prices went ‘above $5 per million British thermal units in parts of the Northeast for the first time since last winter’, as indicated by Wall Street Journal. If such sub-zero temperatures continue even after the snow storm, it will bring a great deal of luck for natural gas, albeit for the short term. ETF Impact In fact, an ETF tracking the natural gas futures – United States Natural Gas ETF (NYSEARCA: UNG ) -added about 0.13% on January 22. Investors should note that natural gas equities, such as First Trust ISE-Revere Natural Gas Index Fund (NYSEARCA: FCG ), were the real winner that added 5.2% on January 22. Below we highlight a couple of natural gas ETFs that investors could use to play if the U.S. economy remains snowed in the near term (see all Energy ETFs here). iPath Dow Jones-UBS Natural Gas ETN (NYSEARCA: GAZ ) This is an ETN option for natural gas investors. It delivers returns through an unleveraged investment in the natural gas futures contract plus the rate of interest on specified T-Bills. The product follows the Dow Jones-UBS Natural Gas Total Return Sub-Index. The note is less popular with AUM of $4.9 million. It is a high-cost choice, charging 75 bps in annual fees. GAZ is down 30.6% in the year-to-date frame and gained about 2% on January 22, 2016. FCG in Focus This product offers exposure to the U.S. stocks that derive a substantial portion of their revenues from the exploration and production of natural gas. It follows ISE-REVERE Natural Gas Index and holds 30 stocks in its basket, which are well spread out across components (read: 5 ETFs Losing Half or More of Their Value in 2015 ). Southwestern Energy Company, Antero Resources Corporation and Gulfport Energy Corporation occupy the top three positions in the portfolio with a combined 16% of total assets. This indicates that no single company dominates the fund’s returns, preventing heavy concentration. The fund has a blended style and is diversified across various market cap levels with 53% in small caps, 31% in mid caps and the rest in large caps. The product has amassed $132.7 million in its asset base while sees solid volume of nearly 2.5 million shares per day. It charges 60 bps in annual fees from investors and has a Zacks ETF Rank of 3 (Hold) with a High risk outlook. The fund is down 13.7% so far this year (as of January 22, 2016). Bottom Line Though there have been some incredible price increases lately in the natural gas market despite weak demand-supply fundamentals, the commodity is due for a price reversal. The weather will likely warm up across the country with the advent of spring and natural gas demand will trip up then. This is truer in the light of the fact that present stockpiles are pretty higher than the five-year average and the year-ago level. So, investors solely relying on a weather play might proceed with a short-term notion. Original Post
4 Utilities To Buy In A Bear Market
Bear market fears continue to dominate the headlines this year. Oil and China are crashing, and the western markets are being sold in anticipation of another global sell-off. Investors are checking their statements in anguish, as they are now faced with a decision to sell everything or hide in areas that are less likely to be affected. Rather than panic and hit the Sell button, investors need to be aware of options that will defend their portfolio against more selling. In a recession, people still have to stay warm and keep the lights on. The consistency of revenues based on those human needs, as opposed to wants, makes the sector favorable in down times. Gas, water and other necessary utilities companies are all considered to be recession-proof industries. These companies can benefit from slowing economic growth, as interest rates will have a tendency to stay lower. Low rates help a utility company by making their dividend look more attractive, plus it allows for cheaper borrowing. The Fed has hinted that rates will be rising, making the dividend of utilities less desirable. However, if global market pressure continues, the Fed will inevitably back off from that thought. The combination of low interest rates, high dividends and market fear make utilities a good place to hide. The Utilities Select Sector SPDR ETF (NYSEARCA: XLU ) is an ETF that reflects the performance of utilities. The chart below marks the performance over the last two years versus the S&P. A closer look shows the divergence since 2016, with smart money supporting the sector. While the ETF will reduce company-specific risk, it also tends to reduce reward and dividends. Let’s take a look at four top-ranked stocks that will enhance the utility play. Idacorp (NYSE: IDA ) is an electric public utility company and a Zacks Rank #2 (Buy) stock. The company is engaged in the generation, purchase, transmission, distribution and sale of electric energy, primarily in the areas including southern Idaho, eastern Oregon and northern Nevada. It operates gas- and coal-fired plants, but the majority of its operations rely on hydroelectric power for their generating needs. The majority of its customers include lodges, condominiums, and ski lifts and related facilities. Idacorp has a market cap of $3.4 billion, with a dividend yield of 3.01%. The company’s EPS growth was up 11.45% over the previous quarter, and it has a good record of surprising EPS to the upside. NorthWestern Corp. (NYSE: NWE ) is a Zacks Rank #2 (Buy) stock and one of the largest providers of electricity and natural gas in the northwest quadrant of the United States. Founded in 1923, it generates and distributes electricity and natural gas to over 700,000 customers in four states, including Montana, South Dakota and Nebraska. The company has a market cap of $2.6 billion and a 3.52% dividend. It sports a forward P/E of 16 and has a Zacks Style Score of “B” in Growth, with EPS growth up 34% from the previous year. While EPS estimates have been coming down lately, sales growth has been steady, an important catalyst for the company. Southern Company (NYSE: SO ) is a Zacks Rank #2 (Buy) stock that operates as a public utility company by means of coal, nuclear, oil, gas and hydro power. The company, with over 26,000 employees, provides a broad range of energy-related services to utilities and industrial companies globally. Southern Company’s businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern has a market cap of $43 billion and offers investors a dividend of 4.6%. EPS growth was up 7.34% from last year, showing why the company has a Zacks Style Score of “B” in Growth and Momentum. It has had an upside surprise six of the last eight times. SCANA Corporation (NYSE: SCG ) is a Zacks Rank #2 (Buy) stock. This is an energy-based holding company whose businesses include regulated electric and natural gas utility operations, telecommunications and other non-regulated energy-related businesses. SCANA’s subsidiaries serve electric customers in South Carolina, North Carolina and Georgia. SCANA offers investors a 3.57 dividend, with an $8.55 billion market cap. Estimates for the company have risen 1.5% over the last 90 days, going from $3.89 to $3.95 a share. In Summary Utilities won’t hit home run, but while the pitcher is throwing a no-hitter, they offer a chance for investors to bunt their way on base. If you are fearful of more market downside, park yourself in utilities until the risks fade away. If interest rates start to rise, or when the fear of global recession is no longer present, exit the sector and add risk. Original Post