Get paid to wait for the recovery of the oil/gas sector

Both oil and natural gas have been decimated in the past few months. After over 50% hair-cut for oil, the question keeps coming up is whether oil has reached its bottom. When you watch CNBC, it is almost a perpetual topic that every few hours there will be someone expert coming up and talking about why oil should go up from here. There is simply too much interest in oil at the moment. As a contrarain investor, I don't believe oil has reached its bottom yet when so many people are waiting for it to come and jump in. The market has the habit to hurt as many people as possible before it is done with the brutal correction. For those who are eager to get into this sector, I think you should think about natural gas instead. It is the young brother of oil and it has shown the sign of recovery from its bottom.

Natural gas (NAT) is very cyclic and in the past few years it has swung between $2.5 to $12 BTU, a huge range. Recently it got killed again with oil and touched again the low level of $2.6 BTU. This looks like its bottom and since then it has moved up and just broken out to the upside through its 3 month trendline. The moment indicator, MACD, is also showing a uptrend to support its bullish trend. There is another catalyst that may be very positive for NAT is the upcoming export of natural gas via the LNG (liquified natural gas). You see, US has too much NAT, enough for over 100 years of usage but everywhere else, NAT is still very much in shortage and highly demanded. In Asia and EU, NAT costs 4-5 times more than in the US. 2015 is the first year that US will complete the LNG export terminal that will be able to export NAT. I bet this will significantly increase demand and push up the NAT price. Of course the recovery of oil price will also boost the NAT demand as it is much cheaper.

So, with this consideration in mind, what is a better way to bet for the recovery of NAT, which will further benefit from the recovery of oil that will happen eventually? You can obviously just buy EFTs for NAT but if NAT turns around to go down again, you will simply lose money. A better way to bet for NAT is to find a stock that will pay you to wait for the trend to develop. I found a company that is great for this purpose. San Juan Basin Royalty Trust (SJT) is a so-called royalty company for natural gas mining. In a nutshell, it lends money to NAT mining companies and in return it will get cheap gas when the mines start to produce, usually during the whole life of the mines. This is such a great business model that SJT has no further risks at all except the initial investment funds. After mines becoming productive, all SJT needs to do is to collect money and pass the net income to shareholders. That’s why when you look for the number of employees for SJT, you find zero, yes, it is none (at least in ETrade). I assume they must have some people working for them but one thing for sure, they don’t need a lot of people to operate due to its simplicity. SJT has a lot of cash in hands with zero debt and it pays out over 90% of net income to investors. That’s why you can enjoy a 8%+ dividend yield at the current price. As you can see below, SJT is sitting on the support line at the low level seen in 2009. I cannot say for sure that SJT won’t go down further from here but I doubt it will. Also, it seems to me there is really no credit risk at all for SJT, as with its cash and no debt as well as its stable and productive business model, there is no way SJT will go out of business. Yes, the NAT and oil prices may still swing widely, which may impact on the SJT stock price, but you are at least paid safely and nicely by holding SJT. I personally really like it.