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Market Insights / Commentary

Following the money in energy, Part 2

By David Russell

Yesterday we showed investors’ hard-charging stampede back into energy stocks following years of neglect. Today we’ll look at a surprising subset that’s led the rally: Liquefied natural-gas tankers.

The three companies to watch are:

  • Cheniere Energy (LNG): Up 15% in the last month.
  • Golar LNG (GLNG): Up 27% in the last month.
  • GasLog (GLOG): Up 24% in the last month.

Using TradeStation’s custom indicator functionality, we created an index to track the group. Its 20% surge in the last month leaves the S&P 500 in the dust (up merely 3%). Heck, even the SPDR Energy Fund (XLE) looks puny in comparison with its 7 percent gain.

So what’s so great about this trio? And why now? The answers, like many things involving the stock market, involves innovation and growth.

The oil and gas industry might have existed for more than a century, but it’s mostly been dominated by producers and refiners like Exxon Mobil (XOM) or servicers like Halliburton (HAL). Sure, they change gradually over time, but for the most part their fortunes rise and fall with the broader cycles of economic growth and commodity prices.

Liquefied natural gas, on the other hand, is a newcomer with barely 30 years of commercial existence… there’s your innovation. It started quietly in the Pacific Rim and Persian Gulf, followed by construction of export facilities in places like Louisiana, Texas, and Georgia. And now those very same loading centers are coming on line and starting to play a major role in global markets.

U.S. capacity roughly tripled between the start of 2016 and the end of last year. The Energy Department projects it will more than triple again, reaching 9.6 billion cubic feet per day by the end of next year…. there’s your growth.

This also seems to be happening at a potentially ideal time. Domestic gas is plentiful and cheap thanks to shale fracking (more innovation). Global demand, especially from China, is on the rise. Meanwhile, traditional leaders like Saudi Arabia and Big Oil are keeping a lid on production… all at the same time global economic growth accelerates and crude spikes to multiyear highs.

Bottom line: Energy has jolted back to life recently, and this time around there are new names to watch. It could be time start learning about this space.

This is the second installment in a series on the Energy Sector. Next time we’ll look at the potentially supportive global backdrop.

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