My Stock Pick of the Week is...

Dont Say No to Energy

December 2, 2008

…Southwestern Energy (SWN). I added this company to my Blue Chip Growth Buy List in the December issue. It’s currently one of my favorite stocks!

If you’re asking why I would recommend an energy stock with crude oil prices taking a nosedive, consider the fact that Southwestern is almost strictly a natural gas company.

Now, I’m not going to lie to you. As I told you in a recent blog entry, the stock has had a tough time since June as natural gas prices retreated along with the rest of the energy sector. You see, SWN’s earnings are leveraged to natural gas prices, as gas accounts for more than 95% of production. But the company’s ability to increase well production while keeping costs at a minimum in 2008 has helped SWN maintain its profitability. And since the stock was oversold down to bargain prices, it’s a no-brainer to buy this fundamentally strong company before it surges.

Just look at the numbers: In the third quarter, Southwestern's earnings rose 320% to $218.2 million or 63 cents per share compared with $51 million or 15 cents per share in the same quarter a year ago. During the same period, the company's sales soared 129.5% to $683 million. Wall Street was expecting earnings of 41 cents per share on sales of $568 million, so Southwestern Energy posted a 53.7% earnings surprise and a 20.2% sales surprise. What's more, the company said its production rose 76% to 52.8 billion cubic feet during the past four quarters–meaning this company is growing at light-speed!

Southwestern has tremendous future potential, too, with a great customer base in the American Southwest and a huge supply of natural gas. In 2007, the company reported estimated proved reserves of more than 1.4 trillion cubic feet of natural gas equivalent. Southwestern Energy is also engaged in natural gas gathering, transportation and marketing. As the world looks to transition to cleaner forms of energy—and natural gas is the cleanest-burning fossil fuel—Southwestern will be leading the charge!

I know some of the naysayers are writing off the entire energy sector now that gasoline is less than $2 a gallon, but don’t believe that will last. A cold winter will push up energy use, and the drop-off in demand due to the worst part of the recession will soon reverse course. I am confident in the long term prospects of the energy sector, and I encourage you to invest in Southwestern now while it is a bargain and has the potential for explosive growth!

PortfolioGrader gives this stock an A-grade. If you’re looking for a way to capitalize on the energy sector, Southwestern Energy is the way to go.