If you're looking for a new non-tech stock with maximum upside potential to add to your portfolio, this may be it.
According to the Motley Fool, there's a new energy source called “Frozen Gold” taking the world by storm and they have found one little-known stock minting money off of it.
The Teaser
Right from the get-go we're greeted with the claim that “there's a new energy boom in the oil and gas industry” that experts predict could add as much as $73 billion to the US economy by 2040.
The short albeit to-the-point presentation is brought to us by the Motley Fool's Stock Advisor newsletter, which purports to have quadrupled the S&P 500's return over the last 21 years.
We haven't reviewed anything Motley Fool-related as of late, but we did take a look at their “Crypto Dark Horse” Pick and “10x Sweet Spots” Stocks in the past, so we have a good idea of what to expect here – a decent mid to large cap stock pick.
We also get lots of buzzwords thrown around like “huge capital gains” and splashy graphics that you might otherwise see in a kid's TV show. But if the graphics and presentation style don't distract you, we come to find out pretty quickly that so-called “Frozen Gold” is actually Natural Gas and some pretty big and well-known investors are bullish on it.
Chief among these is Warren Buffett's Berkshire Hathaway, which purchased a 50% stake in a Maryland LNG transport facility for $3 billion, and the largest oil company in the world, Saudi Arabia's state-owned Aramco, which entered the LNG business last year after buying a stake in MidOcean Energy for $500 million.
Even LNG-rich Australia has heavily reinvested back into one of its top exports to the tune of $200 billion.
Mixed Market Signals
Despite capital flowing into the LNG industry or perhaps because of it, the spot price of natural gas is down more than 33% since this time last year.
What gives?
This has been due to a marked oversupply of the liquefied energy that is cooled to a negative 259 degrees.
Continuing investment as well as a slew of new projects set to come online are pushing up supply by an estimated 18% year-over-year, according to the Global Energy Monitor.
However, there is light at the end of the pipeline.
Energy demand is growing by even more from every conceivable angle, all across the world, as we will show next, and the Motley Fool's top LNG pick could give us a chance to get in near the bottom of the upcoming energy boom.
The Pitch
This “frozen gold” LNG stock pick along with other expert recommendations are available to us immediately if we agree to join the Fool's Stock Advisor newsletter for only $49 for the first year.
The special offer includes a 30-day “no questions asked” membership fee refund period, two new stock picks every month, a stock pick rankings board, so you can see all the top performers, and access to an established online community of individual investors.
Breaking Down the $73 Billion Energy Boom
The $73 billion figure touted at the beginning of the presentation is nothing new it has little to do with LNG overall.
Where it comes from is a bipartisan federal government bill from 2021, committing as much as $579 billion towards various infrastructure projects, including $73 billion being allocated towards upgrading the national power grid.
What's more, of that $73 billion, the majority was earmarked towards “expanding clean sources of energy” and doling out tax credits for the same.
Not exactly criteria that LNG meets, although it is a cleaner and cheaper source of energy than oil and coal.
However, as I stated earlier, there is a silver lining here.
Global energy demand is growing and this equals opportunity for investors.
The Looming Supply/Demand Gap
From end-use electrification growing in China and India, thanks to a rising middle class, to data centers and other rapid growth industries in the West and around the world, demand for energy is booming.
LNG plays an important role in this mix.
Energy giant Shell expects demand for liquefied natural gas to rise by more than 50% by 2040, as it doubles its market share of the global gas supply, from 13% to 24%.
This real long-term demand coupled with conflicts in Europe and the Middle East causing disruptions to international supply over the short term means a real case can be made for why LNG really is “frozen gold.”
Let's see what clues we get about the Fool's “top North American gas producer.”
Revealing the Motley Fool's “Frozen Gold” LNG Stock
Here is what was revealed to us near the end of the brief video presentation:
- The company is 20x smaller than ExxonMobil and 12x smaller than Shell.
- It recently signed deals to expand its LNG production worldwide.
- This stock has returned an average of 134% per year to investors since 2020.
The Motley Fool's LNG pick is likely EQT Corp. (NYSE: EQT). However, it's not a perfect match.
- Based on its current market cap of around $16 billion, EQT is roughly 12x smaller than Shell and more than 30x smaller than ExxonMobil and its $500 billion-plus market value.
- EQT has been actively making deals to expand its LNG production, including the announced acquisition of Equitrans Midstream Corp, which its shareholders will vote on next month.
- The only clue that doesn't match up is EQT's stock performance over the past five years, which only averages to a far lower 28% per year.
The other two picks I was seriously considering here were Antero Resources Resources Corp. (NYSE: AR). Whose stock performance fits the Motley Fool's description to a tee, up 515% over the past five years, and Cheniere Energy Inc. (NYSE: LNG), which is also one of the top producers of LNG in the US.
Top Returns from A Top LNG Producer?
From a business standpoint, EQT is above average, as the largest natural gas producer in the US.
However, from an investment standpoint, it is decidedly below average.
Despite being at the top of the food chain in its respective business, as an LNG producer and project developer, EQT has a Return On Equity and Assets below industry averages at 3.4% and 2%, respectively.
If it can become a more efficient capital allocator, pay down its $4.9 billion debt load, and begin generating more free cash flow, it could also raise its 1.73% dividend yield, which would make EQT a much more attractive investment.
Until that time comes, I personally like oil and gas royalty trusts to play the energy boom, which are as efficient and low-cost as a business gets, while also benefiting from more income as energy prices rise, resulting in bigger dividends.
Quick Recap & Conclusion
- According to the Motley Fool, there's a new energy source called “Frozen Gold” taking the world by storm and they have found one little-known stock minting money off of it.
- “Frozen Gold” is Motley Fool code for Natural Gas, which despite some short-term headwinds is growing and the natural gas supply market share is also on the rise.
- The Fool's “frozen gold” LNG stock pick along with other expert recommendations are available to us immediately if we agree to join the Fool's Stock Advisor newsletter for only $49 for the first year.
- Although short and to the point, the presentation packed a few clues near the end, which led us to EQT Corp. (NYSE: EQT). It's not a perfect fit, but it's the closest thing to The Fool's description. Antero Resources Resources Corp. (NYSE: AR) and Cheniere Energy Inc. (NYSE: LNG) are also possibilities.
- EQT is a stable business with below-average underlying economics. However, there are better ways to profit from rising global energy demand with oil and gas royalty trusts.
Will natural gas continue to become a more prominent part of the overall energy mix? Tell us what you think in the comments.
Greetings,
Anyone have recommendations for any royalty trusts for oil and gas?
Thanks!