With the economy starting to circle the drain again and a presidential election looming, there is growing sentiment in Washington to boost revenue by ending tax breaks for oil and gas companies like Cabot Oil & Gas (NYSE:COG). And should debt hawks beat out the industry’s deep-pocketed lobbyists, the entire sector will feel the pain, at least in the short run.
But for the long term, oil and gas stocks will rise or fall on other macro issues like supply and demand. And the companies that best manage operations and exploit new energy plays are likely to be rewarded. After all, cold weather will always be with us, as will the need to achieve cleaner energy that’s domestically produced.
Cabot is heavily focused on natural gas — the easiest green solution around given recent jitters about nuclear plants. About 98% of Cabot’s reserves — and 96% of its production — are in natural gas. That exposure might make you cringe at today’s prices — and that formula looks a lot worse if a double-dip recession rears its head.
But despite the challenges, Cabot’s still got game. Here are four reasons to love COG:
Bottom Line: COG is a solid company with a strong market position and a power edge in the Marcellus Shale. Flooding from Hurricane Irene that disrupted the transport of natural gas largely was built into the company’s third- and fourth-quarter assumptions, which the company advised this week were still on track. And by the end of this month, COG is expected to surpass its production levels for all of 2010. Because we’re settling into the notorious “shoulder months” (September-October; May-June), natural gas prices are likely to slump until we hit winter’s first blast. If there’s a corresponding slip in GOG shares, this stock would be a good value at $65 and a bargain at $58.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.