New Trade for August 4th, 2023

The natural gas industry features some high-quality businesses with profitable stocks. The top players are long-standing, competitive firms that often offer dividends

Among the big names in the natural gas space are Chesapeake Energy (CHK), NextEra Energy (NEE), and Occidental Petroleum (OXY). Many stocks can be found in the sector, though, and hedge funds love them. 

There’s one stock in particular that excels as an income opportunity, boasting consistent dividends, a solid balance sheet, and the most competitive pricing among its peers… 

Coterra Energy (CTRA)

Coterra Energy is one of the strongest choices in the energy sector right now. CTRA stands out as a top player due to its large reserves and solid balance sheet, making it a reliable income play… However, a big factor in its greatness lies in its beta score, which is 0.27. Any stock with a score under 1.00 is considered safe from broader market volatility—the lower the beta, the safer the stock. With a market cap of $21 billion, CTRA is also among the biggest players in the industry. 

CTRA benefits from strong price realization, and with plans to redirect its activities, its projected oil production growth is 5% per year (without increasing capital spending). Also, by maintaining healthy business metrics, CTRA is in a great position to return cash to shareholders. It offers a 7.94% annual dividend yield with a $0.20 ($0.80/year) per share quarterly payout. 

Earnings seasons haven’t been a problem. Last on record: CTRA beat EPS and revenue by 24.11% and 13.09% margins, respectively. CTRA reported EPS of $0.87 per share vs. $0.70 per share as expected and revenue of $1.78 billion vs. $1.57 billion. CTRA also shows serious earnings gains for all of fiscal 2022

For the present quarter, CTRA is projected to report $1.3 billion in sales at $0.37 per share. It is currently up by 10.44% year-to-date and trades close to the bottom of its existing 52-week range, which leaves room for growth. As assigned by analysts who give 12-month forecasts, CTRA has a median price target of $29, with a high of $39 and a low of $25, giving it an upside potential of almost 45% based on its current price

An Ideal PEG (price/earnings/growth) ratio is somewhere between 0 and 1, as it reflects the stock’s viability while being undervalued. CTRA enjoys a PEG ratio of 0.29x, which suggests that it is greatly undervalued. This is compared to the S&P 500’s -0.5x and -2.19x for the oil industry as a whole

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