Natural gas stocks can provide investors an opportunity to invest in both the energy and utility sectors and can be especially attractive to those who support clean energy. Here’s what one should know about investing in natural gas stocks.
In this article:
- Disclaimer About Natural Gas Stocks and Recommendations
- What Should an Investor Look For In a Natural Gas Company?
- Who Are Buying Natural Gas Stocks?
- Where Can One Find the Biggest Natural Gas Stocks?
- How to Invest in Natural Gas Stocks
Questions Investors Ask About Natural Gas Stocks in an IRA
Disclaimer About Natural Gas Stocks and Recommendations
Natural gas stocks occupy an interesting space. They give portfolios exposure to the utilities and energy sectors while giving investors an incentive to support clean energy.
Clean energy, particularly natural gas, powers the lion’s share of energy production: in the 2017 US Energy Information Administration report, 31.8% of primary energy production comes from natural gas.
The demand for this energy source fuels natural gas companies not just locally but also globally. The International Energy Agency (IEA) forecasts that natural gas will power 60% of Asia Pacific in 2024, signaling a growing market.
Since the U.S. is the largest forecasted exporter of natural gas, at around 35% from 2018 to 2024 as per IEA, natural gas stocks and investors may ride the rising waves of global demand and more efficient technology.
All in all, natural gas stocks can give investors both diversification in portfolios and exposure to the reasonably growing clean energy sector. However, if natural gas stocks upon review don’t fit the investment philosophy of the IRA, then the investor has to weigh in and decide for himself or herself.
What Should an Investor Look For In a Natural Gas Company?
Interestingly, oil companies work hand-in-hand with natural gas companies, simply because where there is oil, natural gas is near. Investors shouldn’t be confused to find that oil companies are also natural gas companies.
Generally, investors buy natural gas stocks for:
- The growing clean energy movement
An important characteristic is the level of diversification this investment brings. Some natural gas stocks are primarily oil companies, while a few are mainly producers of natural gas with minimal oil reserves.
For example, the oil titan Shell Oil Company NYSE:RDS.A produces both oil fuels and natural gas.
The ExxonMobil Company NYSE:XOM, headquartered in Texas and historically an offshoot of the Standard Oil Company by the Rockefellers, has a global presence and affects both the production and sale of natural gas.
An example of an (almost) fully natural gas stock is The Williams Company NYSE:WMB, which has its head office in Oklahoma. While WMB primarily produces, exports and locally distributes natural gas, they also have a few million barrels of oil in storage.
Another interesting perspective that may give investors a new angle to look into is with size. A lot of natural gas stocks are oil stocks, which is an industry dominated by old corporations.
Like Shell and ExxonMobil, old companies usually mean deep pockets and relative stability, assuming the market is stable. In contrast, younger companies may give a high-risk, high reward exposure that investors with a higher risk appetite are looking for.
Investing in Clean Energy
Lastly, there’s a growing social movement in favor of cleaner industries. This social consciousness can give early or prudent investors with natural gas stocks in their portfolios a possible good boost in the share price.
Diversification, size, and the rise of environmentalism can add to the allure of having natural gas inside IRA portfolios.
Who Is Buying Natural Gas Stocks?
Generally, two groups show interest in natural gas investments. These are individual investors and institutional investors.
People with 401(k)s and other managed funds have to abide by the investment philosophy of the fund.
Since the investment philosophy limits the options for the funds theoretically, fund managers have to invest in what they claim to be their philosophy. This limiting option allows fund managers to focus their energies and research into one specific area to improve efficiency.
Due to both the growing demand for clean energy and the rise of socially conscious investing, green funds, along with energy and utility funds, invest in natural gas.
The big moves in the stock market for natural gas companies can usually be attributed to the “investing whales.” These are big funds with big holdings and deep pockets.
On the other end are individual investors. They either place their stocks in an investment vehicle like an IRA or buy these stocks for their own portfolios.
Individual investors buy natural gas stocks for a myriad of reasons, like diversification, social and environmental consciousness, or stability of market demand. Whether through a self-directed IRA (which provides opportunities for more alternative investments like precious metals and cryptocurrency investing) or through a personal stocks portfolio, individual investors have bought and sold these companies for a long time.
Where Can One Find the Biggest Natural Gas Stocks?
Generally speaking, the biggest oil and natural gas companies can be found on the NYSE.
WBM, RDS.A, and XOM can all be found in the NYSE.
However, some international players, due to political or other reasons, can’t be found in public stock exchanges.
For example, one of the world’s largest natural gas company is the Russian company GAZPROM, the majority shares of which are owned by the Russian Government. Interested investors can buy shares through over-the-counter markets under the ticker OGZPY.
Generally speaking, the top oil and petroleum companies are the top natural gas companies. It bears repeating that natural gas and oil go hand-in-hand.
How to Invest in Natural Gas Stocks
Investors can either invest in natural gas stocks directly or indirectly.
Any self-directed IRA can accommodate stocks, which can save investors through tax benefits given by an IRA.
However, contributing beyond the limits set by law can actually minimize the return or growth of assets. This is because the IRS applies fees for over contributions.
Investors can also just hold their natural gas positions by buying stocks directly through their stockbroker.
Lastly, always do due diligence. Check the company before buying shares.
It’s also good to review if buying or selling these shares is aligned with the investment philosophy of the investor.
Natural gas stocks can give IRA portfolios great diversification to both the massive oil and petroleum sector and the growing clean energy niche. They also offer a variety of options for companies to invest in depending on the investor’s risk tolerance.
Do you have any natural gas stocks in your IRA? How about stocks in the growing clean energy sector? Share with us why you got interested in investing in these in the comments section below.
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