2 More Stocks to Profit From the Natural Gas Spike

Encana and Nuvista are taking steps in the right direction and beginning to see the fruits of their labour.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published February 6, 2014 3:08 pm EST

To follow up on yesterday’s article, “Natural Gas Continues to Spike Higher — How Can You Profit?”, I would like to go further and look at two other energy stocks that I have owned for a while now and that have been performing really well lately, Encana (TSX:ECA)(NYSE:ECA) and Nuvista Energy (TSX:NVA).

Up on big volumes

Encana’s stock price has increased 10% year-to-date on higher than normal volumes. Are institutional investors finally getting back into the stock? The biggest volume in a long time was seen yesterday, with over 8 million shares trading and the stock increasing 1.6%, reaching a high of $21.22 in the day.

Nuvista’s stock price has increased 19.3% year-to-date also on higher-than-normal volumes.

The average price deck that analysts have been using for natural gas has been increasing in recent months as we come to the realization that these estimates for natural gas prices have been too low. This will lead to EPS estimates also rising and natural gas producers showing results that are better than expected.

Improving company fundamentals

The story for both stocks goes beyond natural gas prices; there are also company-specific improvements that both companies are implementing. Some characteristics that these companies share are:

Healthy balance sheets
Operational improvements: Encana expects a 10% increase in netbacks in 2014 due to cost reduction and capital efficiencies.
Strong production increases: Nuvista expects year over year production per share growth in 2014 is expected to be 15%.
Good resource base

Foolish bottom line

Renewed interest in these two names is, in my view, based on not only strength in natural gas prices but also the acknowledgement that both companies are taking steps in the right direction and beginning to see the fruits of their labour.

Encana is reporting fourth-quarter and year-end results on February 13, and Nuvista is expected to report in the beginning of March. Based on what I am seeing at this time, I believe that these results will surprise the market to the upside.