Tuesday June 26, 2012
by Brian Hicks, editor Wealth AdvisoryNow is an ideal time to buy a natural gas royalty trust;
ECA Marcellus Trust I (
ECT) holds royalty interests in producing and developmental horizontal gas wells for Energy Corporation of America.
The royalty interests allow ECT to receive 90% of the proceeds of sales from oil and natural gas attainable through the producing wells and 50% of sales proceeds from sales attainable through the development wells.
Analysts expect ECT to earn $0.52 per share on revenue of $9.5 million for the second quarter and $2.11 per share on revenue of $40.37 million for the year. With a forward P/E of just 6, ECA Marcellus w also trades at book value.
Clearly, if natural gas prices head lower, these valuation metrics will change. As for our risk/reward scenario, we see downside risk to the 52-week low of $15.68. That is offset by a potential upside move to $27/share.
It could be years before natural gas prices rise. However, one thing we do know is that corporate America is starting to pick up the pace on adopting natural gas.
Trucking fleets are actively converting their fleets to natural gas engines and there is finally real momentum in bringing compressed natural gas (CNG) to commercial filling stations.
And of course, you are being paid 13.3% a year to wait for the share price to move – or for natural gas prices to improve. That's a pretty good reward for waiting. We consider ECA Marcellus Trust I a strong buy under $17.50 a share.
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