Fool Canada’s first 1,000%+ winner?

Our Chief Investment Advisor, Iain Butler, and a team of The Motley Fool’s most talented investors from across the globe recently embarked on an unprecedented mission:

To identify the 20 Canadian small-cap companies they believe have the best shot at earning investors like you gains of 1,000%+ over the coming years.

For the next few days only, you can get the names and full details on these 20 potential “10-baggers” when you join Iain and his team in a first-of-its-kind project they have dubbed Discovery Canada 2017.

Think Natural Gas Is Heading Higher?

The current Baker Hughes natural gas rig count, which is used as a measure of activity in the oil and gas industry, is quite interesting. The North American natural gas rig count was a mere 122 on April 8, which is a small fraction of rig counts in prior years. For example, in April of last year, the rig count was over 300.

In fact, in my data set from Baker Hughes, which goes as far back as the 1990s, this is the low. And in some years, like 2006, the number was over 1,500. So clearly, we are seeing a real and dramatic supply-side response. And this is leading me to become more bullish on the commodity.

Here are the two stocks that I would get into to take advantage of future strength in natural gas prices.

Encana Corporation (TSX:ECA)(NYSE:ECA)

Despite Encana’s struggles of late and badly timed effort to increase its exposure to “oily” production, the fact remains that the company still provides the most leverage to natural gas in terms of volume; it had natural gas production of 1,635 Mmcf/d in 2015, representing 67% of production.

With its fourth-quarter results, the company has embarked on a plan to reduce capital spending, continue to improve its cost performance, and improve its balance sheet. Its capital spending plans for 2016 were reduced by over 40%. Encana had over $270 million of cash on its balance sheet as of the end of the fourth quarter. The company has continued to use this cash to retire some of its outstanding senior notes, which will effectively reduce interest costs going forward.

Encana’s stock has a two-year return of -67.18% and a year-to-date return of 13.46%.

Peyto Exploration and Development Corp. (TSX:PEY)

Peyto remains the lowest-cost producer of the intermediate natural gas exploration companies, which makes it an ideal choice for tough times. Natural gas makes up over 90% of the company’s production, which is growing–this is not typical in this part of the cycle. Furthermore, the company’s balance sheet remains strong; its $1 billion credit facility is only 63% drawn as at December 31, 2015, and the company still pays a dividend, which stands at a healthy 4.32%.

Peyto’s stock has a two-year return of -24.7% and a year-to-date return of 12.3%.

Bottom line

In summary, it appears that the supply-side response from energy companies is in full swing, and with drilling levels at lows not seen since at least 2000, the sector seems to be setting up for a supply/demand balance that will prove to be very attractive for energy companies in the medium term as this dynamic makes its way through the system.

Two energy plays for your watch list

Check out our special FREE report "2 Canadian Energy Stocks on the Cusp of a Powerful Long-Term Trend". In this report, you'll find that Canada is rich in other energy sources that are poised to take off. Click here now to get the full story.

Fool contributor Karen Thomas owns shares of EnCana Corporation.

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!

Enter your email address below to find out how you can claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.