Investor Alert

Sept. 14, 2018, 5:03 p.m. EDT

Five ways to profit from the cold winter just around the corner

Natural gas inventories are low, and weather forecasts are dire

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By Michael Brush, MarketWatch

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This winter is going to be a doozy. We could see a repeat of 2009-2010, which brought a big chill and “Snowmageddon.”

Fortunately for investors hunting for an angle, natural gas (NG) inventories just happen to be at their lowest level in years. The upshot: Prolonged cold and snow could lead to NG shortages and price spikes, which put a bid under much-hated natural gas stocks.

The five names I suggest below are trading near their 52-week lows. That makes them interesting contrarian plays. I’ve suggested several of them in my stock newsletter, Brush Up on Stocks , in part because insiders are buying them. Insiders challenging the market by purchasing hated names is often a great buy signal, and it’s a go-to tactic in my letter.

With the market looking shaky, NG names could outperform both the S&P 500 Index /zigman2/quotes/210599714/realtime SPX -2.27% and the SPDR S&P Oil & Gas Exploration & Production exchange traded fund (XOP /zigman2/quotes/203527521/composite XOP -6.56%  through the end of the year.

Before we get to the names, let’s look at the forecast. “It will be one heck of a winter,” says Joe Bastardi of WeatherBELL Analytics. “Major cold and a stormy winter are in the cards.”

How cold? The Midwest, Atlantic coast and Deep South could see temperatures one to five degrees below normal. That may not sound like much, but it is enough to make people feel a chill and turn up the heat. And there will be dramatic cold snaps that spike heating demand.


The biggest chills — compared to what’s normal — will be in the Southeast and South central zones. That’s good for NG demand, because people in these areas are less acclimated to the cold. They reach for the thermostats more quickly.

Temperatures in the Pacific Northwest may be warmer than normal. But that doesn’t dent the bullish case for NG. Weighted for population, temperatures will be one degree below normal, says Bastardi.

The extra snow will also make it feel more wintery. Boston may get 50-60 inches of snow compared to an average of 41, says Bastardi. New York may get 30-40 inches against an average of 25. And Washington, D.C., could see 20-30 inches vs. an average of 16. The Deep South will also see above-average snowfall. “This could be a wild winter, and it could last into March or April,” says Bastardi.

Why cold is on the way

Like a market quant, Bastardi makes his forecasts in part by looking at patterns shaping up at the moment, and then checking what normally follows. Right now, the closest matches are the winters of 2002-2003 and 2009-2010. The latter brought the early February blizzard dubbed “Snowmageddon.” That dumped over 35 inches of snow on parts of the Northeast. The 2002-2003 winter was the coldest in about decade for many parts of the country.

Another factor pointing to a cold winter is a drop in sunspots. This is called the “solar minimum.” Every eleven years, sunspot activity drops sharply, reducing solar radiation, which affects the weather.

Not all meteorologists buy this theory. But Bastardi believes solar minima can lower the Earth’s temperatures. So does his fellow meteorologist Michael Mann, a professor of atmospheric science and the director of the Earth System Science Center at Penn State. Mann thinks solar minima can affect weather patterns in a way that shifts the jet stream, influencing regional weather conditions.

I like to check in with Bastardi at WeatherBELL Analytics for a medium-range winter forecast every year, because he’s not afraid to deviate from consensus, and he’s often right. But he’s not the only one forecasting a big chill. The Farmers’ Almanac predicts “teeth chattering” cold and with plenty of snow. It also says winter conditions may hang on through the start of springtime.

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