In the global push for cleaner energy sources, the role of natural gas should not be ignored. As compared to burning coal or oil, natural gas is a cleaner fuel as it produces fewer air pollutants like sulphur dioxide and particulates. Of course, natural gas is not a renewable energy source. However, it can act as a bridge between conventional and renewable energy sources. Given this overview, I would be bullish on some of the best natural gas stocks.
Coming to the market potential, the global natural gas market size is likely to be worth $1 trillion this year. It’s further expected that the market size will swell to $1.4 trillion by 2027. This would imply growth at a CAGR of 7.5% through 2027. Therefore, there is immense scope for value creation from the industry.
This column talks about the best natural gas stocks that are worth holding for the long term.
Chevron Corporation (CVX)
Chevron Corporation (NYSE:CVX) is a blue-chip stock that trades at a valuation gap and offers a dividend yield of 4.18%. The Company has quality oil and gas assets and the Company’s business is a cash flow machine. I would not think twice before considering exposure to CVX stock for the next five years.
Specific to natural gas, Chevron is engaged in all aspects of the business. This includes exploration, production, liquefaction, shipping, pipelines, and power generation. As of 2020, Chevron reported total natural gas production of 7.29 billion cubic feet per day.
It’s worth noting that the Company has natural gas assets in Africa, Middle-East, Asia, Australia, Latin America, and North America. With global coverage, Chevron expects to substantially increase natural gas production volume over the next decade.
I must add that as of Q3 2023, Chevron reported net-debt ratio of 8.3%. With high financial flexibility, the Company is positioned to make aggressive investments towards exploration and production.
Cheniere Energy (LNG)
The outlook for Cheniere Energy (NYSE:LNG) stock looks bullish even after an upside of 25% for year-to-date. It’s worth noting that LNG stock trades at a forward price-earnings ratio of 4.8. Valuations are attractive and the stock offers a dividend yield of 1%.
Cheniere Energy, through its subsidiaries, owns and operates two natural gas liquefaction and export facilities located in Cameron Parish, Louisiana at Sabine Pass and near Corpus Christi, Texas. As global demand for LNG swells, the Company is well positioned to benefit. Further, the construction on Corpus Christi Stage 3 is on track and is likely to contribute to growth in 2025 and beyond.
For Q3 2023, Cheniere reported revenue and distributable cash flow of $4.2 billion and $1.2 billion respectively. With healthy cash flows, the Company increased dividends by 10% in October. Given the industry tailwinds, I expect healthy dividend growth to sustain. Besides dividend and buyback, robust cash flows will support deleveraging and improvement in key credit metrics.
Flex LNG (FLNG)
Flex LNG (NYSE:FLNG) is another attractive name among natural gas stocks to buy. After a downside of 9% in the last 12 months, FLNG stock looks undervalued and trades at a forward price-earnings ratio of 12.3. I must add that the stock offers an attractive dividend yield of 9.62%. Given the industry dynamics, dividends are sustainable.
As an overview, Flex LNG is a provider of seaborne transportation of liquefied natural gas globally. Currently, the Company has a fleet of 13 LNG carriers. An important point to note is that a majority of the fleet has a long-term contract backlog. This ensures stable revenue and cash flow visibility.
While the industry is capital intensive, Flex LNG has a strong balance sheet. As of Q3 2023, the Company reported net debt of $1.4 billion. With long-term contract backlog and with no debt maturities until 2028, debt servicing is likely to be smooth.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
