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MoneyShow Score: EQT Corp.

At the start of the year, MoneyShow featured its annual Top Picks report asking leading advisors for their favorite investment ideas for 2016. In the report, 85 stocks and funds were recommended, and the stock picks that we submitted on behalf of The Energy Strategist have been among the top performers year-to-date.

Last week I was interviewed by The Money Show’s Steve Halpern to talk about the picks I submitted, as well as the outlook for the rest of the year. Here is Part I of that interview.  

Steve Halpern:  Congratulations are definitely in order.  In our 2016 annual top pick survey you chose EQT Corp. (NYSE: EQT) as your single favorite stock, and since the start of the year it’s up over 50% (52.2% as of 7/1).  Could you share an overview of EQT and explain what the company does, and highlight your original rationale behind this pick?

Robert Rapier:  Sure, EQT is a major natural gas producer in the Marcellus Shale. It was very clear that natural gas does not go below $2.50 a million BTUs very often, and I’ve been highlighting this.  

It’s only happened about three times in the last 20 years, and every time it did prices more than doubled in the subsequent two years.  

For the past six or eight months natural gas prices have been below 2.50, and they’ve been bouncing around $2. So I believed natural gas was going to go up and EQT was a very solidly-placed natural gas company.  

The natural gas price in the short term is all about the weather so I got a little lucky with the weather as the beginning of summer has been very hot. So there’s a call on utilities to use more natural gas because they need to produce more power for air conditioning.  

The timing just worked out.  It could have been if natural gas was still hanging around $2, then EQT may not have moved much yet.  I was confident EQT would move, it’s just that it moved at the right time.  

Over the past month, natural gas prices moved from about $2 a million BTUs up to $3, and natural gas companies have followed suit, and it performed very well.  

Steve Halpern:  Looking to the second half of the year, do you still remain optimistic on both the outlook for the natural sector, as well as on this stock in specific.

Robert Rapier:  Well, I think the upside is definitely limited relative to where we were six months ago. Natural gas prices right now at $3 are probably fairly valued, but they do have some momentum so we may see them advance a little bit more.  

From a fundamental perspective—and I always invest from a fundamental perspective—natural gas inventories are very high still. But I think people are looking down the road, and seeing there’s a lot of demand drivers that are going to come online that will eventually correct that inventory situation.

I think for a longer term investor natural gas is still a good buy, and EQT is still a good buy.  Short term, I think there’s a little bit more of risk of a pull back, especially if the weather moderates here.

Again short term you’re really sort of at the mercy of the weather.  If summer moderates, and then we go into a mild winter we could see a pullback in natural gas and in natural gas companies.  

For longer-term investors I would say still natural gas is a good place to be. I think prices will be higher than they are now, but we may see a pullback between now and then.

Note: In Part 2 of this interview, I will discuss the second pick, which has also outperformed the broader market, as well as my outlook and a few other names to consider for the remainder of 2016.     

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

 


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