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For stock market watchers, 2022 will be remembered as the year of the bear. Going by year-to-date performance, the major indexes are likely to see out 2022 posting negative returns.

The same, however, cannot be said for natural gas stocks, which driven by the macro conditions – namely Russia’s invasion of Ukraine – have delivered excellent returns for investors, even accounting for the segment’s recent pullback.

Looking at the prospects of the U.S.’s natural gas sector, Jefferies’ Lloyd Byrne thinks there’s more growth on tap, despite the short-term presenting some headwinds.

“Over the near term,” said the 5-star analyst, “we see the risk of North American natural gas production outpacing demand and potentially pressuring Henry Hub in 2023 (all else equal). However, we expect medium-term demand growth from the start up of US LNG liquefaction plants, and longer-term resilience in pricing due to natural gas’ role in the energy transition.”

With the medium-to-long-term outlook for the commodity being positive, Byrne thinks now is an “opportune time for investors to build positions.”

So, with this as backdrop, let’s take a look at two names which have already posted some serious gains this year but which according to Byrne have plenty more gas in the tank. At the same time, let’s check in with the TipRanks database to see what the rest of the Street makes of these choices.

Antero Resources (AR)

We’ll start with one of the US gas industry’s largest ‘pure play’ producers, Antero Resources. This $10+ billion company operates mainly in the upper Ohio River region, in West Virginia’s portion of the Marcellus shale and in Ohio’s Utica shale; this region of Appalachia is well known as the home of some of North America’s richest natural gas and natural gas liquids reservoirs. In all Antero’s assets include approximately 612,000 net acres in low-cost production areas.

In the second quarter of this year, the company averaged 3.2 billion cubic feet per day of natural gas production, and 160,000 barrels per day of natural gas liquids. In total, revenue rose by a huge 349% year-over-year to $2.2 billion. Antero showed a net income of $765 million and a free cash flow of $664 million. The net income was a dramatic turnaround from the $523 million net loss in 2Q21 and resulted in EPS of $2.29. The company will report its Q3 numbers later this week (Wednesday, Oct 26).

Investors should note that Antero, while not paying out a dividend, does maintain an active share repurchase program. The company spent $358 million on repurchases in 1H22, of which $247 million was spent in the second quarter. Antero has $707 million remaining in its Board-authorized repurchase program, and expects to complete the purchases this year.

Jefferies’ Lloyd Byme describes Antero as ‘checking all the boxes,’ and in his initiation-of-coverage report this month, he writes, “Antero’s significant natural gas scale and exposure to liquids-rich assets complements the leading “out-of-basin” pricing exposure to premium LNG markets in a constructive pricing environment, allowing for robust FCF in the upcoming years and providing the financial flexibility to increase shareholder returns, opportunistically lower debt on an already strong balance sheet, and pursue the strategic organic acquisitions, in our view.”

Byme gives this stock a Buy rating, and his $47 price target suggests it has room for a 40% upside in the year ahead. (To watch Byme’s track record, click here.)

The 7 recent analyst reviews on file for Antero include 5 to Buy and 2 to Hold, for a Moderate Buy consensus rating from the Street. Shares in AR are priced at $33.47 and their $50.29 average price target implies a 50% one-year upside potential. (See AR stock forecast on TipRanks)

EQT Corporation (EQT)

Based in Pittsburgh, Pennsylvania, the second stock we’ll look at, EQT, is the largest independent ‘pure play’ natural gas producer in the US. The $14 billion company operates in Pennsylvania, Ohio, and West Virginia, where it develops world-class gas assets at the core of the Appalachian basin, where its footprint exceeds 1 million acres and includes approximately 20 trillion cubic feet of proven reserves.

Last month, EQT improved that position when it announced that it had entered into an agreement acquire both Tug Hill and XcL Midstream, and combination of production and midstream assets, for a total of $5.2 billion. The acquisitions will bring an important expansion to EQT’s operations in its core region.

In addition to expansion, EQT reported solid Q2 results earlier this summer. Sales volume came in at 502 billion cubic feet, supporting $916 million in operating cash flow and $543 million in free cash flow. The company realized an adjusted EPS of 83 cents, far ahead of the 6-cent figure reported in 2Q21. Like Antero, EQT will announce Q3 results on Wednesday.

EQT also manages a significant capital return to shareholders. The company uses both dividends and share repurchases in that program. In its Q2 report, the company noted that it had increased the common share quarterly dividend from 12.5 cents to 15 cents, as part of an overall plan to return $4 billion to shareholders by the end of 2023. At its current rate, the dividend annualizes to 60 cents per common share and yields a modest 1.4%. The key to this dividend is less the yield than the reliability; EQT Corp hasn’t missed a quarterly dividend since it started making payments in 1989. This reliable dividend is complemented by a $2 billion share repurchase authorization.

This is another company that Byme has initiated coverage on, with a bullish commentary: “We like EQT’s asset concentration in the low-cost Appalachian basin and the transition following the leadership changes in 2019 which resulted in the acquisitions of higher-margin assets from Tug Hill, Alta and Chevron, capital efficiency improvement of 45% in ’21 vs ’19 and continued focus on debt reduction, while returning cash to shareholders. This is likely to continue… The scale coupled with inventory quality has resulted in improvement in break-evens, supporting our FCF profile. We like catalysts including potential increases in shareholder returns and LNG contract announcements.”

In setting his first rating on EQT shares, Byme gives the stock a Buy, and his price target, set at $57, indicates a 50% upside in the next 12 months.

EQT gets a unanimous vote from the Wall Street analysts, with all 13 of the recent reviews agreeing that it’s a stock to buy, naturally culminating in a Strong Buy consensus rating. The stock is currently trading for $37.88 and has an average price target of $62.77, giving it a potential one-year gain of 66%. (See EQT stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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