3 Natural Gas Stocks to Buy Now

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Now is a great time to be an investor in energy stocks: North America's shale oil and natural gas revolution keeps on rolling. Hydraulic fracturing has simply changed the game for the energy industry. And as the E&P sector continues to use fracking and other advanced drilling techniques, production numbers and reserves keep climbing.

All of that activity has been a big boon to natural gas stocks.

Various utilities are switching over from "dirty" coal to the cheaper, cleaner-burning fuel, and with consumers — both residential and commercial — increasing their demand, consumption of natural gas continues to spike. Meanwhile, the promises of liquefied natural gas exports and natural gas-fueled vehicles only heightened the potential boom for natural gas companies even further.

Overall, the Energy Information Administration projects that natural gas demand in the United States could be 26.55 trillion cubic feet by the year 2035 — a 16% increase since the hydraulic fracturing boom took off in 2009.

Simply put, natural gas stocks could be the energy stocks with biggest potential. Here are three prime natural gas stocks to buy now:

Southwestern Energy

Southwestern Energy (SWN) is well-positioned to benefit from rising gas demand. The natural gas stock is one of the biggest players in some of the most prolific shale fields in the country. Those fields include Pennsylvania's mammoth Marcellus and roughly 915,000 acres in the Fayetteville shale of Oklahoma and Arkansas.

While the focus on dry gas has hindered many other natural gas stocks, SWN has benefited due to its drilling efficiencies and low cost structure. Southwestern’s finding and development costs have averaged below $1.50 per millions of cubic feet of natural gas equivalent over the last three years. Only a small handful of natural gas companies — including Range Resources (RRC) — have beaten SWN in that regard.

Those low capex costs have helped the firm see huge returns in the earnings department.

The natural gas stock reported a 34.2% jump in profits and a 25.5% increase revenues vs. the year-ago quarter. That follows SWN's massive 108% profit gain reported in the second quarter. With Southwestern deciding to hike its 2013 capital spending plan to $2.25 billion, analysts estimate that the boost in output should help profits grow even further into 2014.

SWN shares currently trade for a forward P/E of 17.

Cabot Oil & Gas

First mover status is vitally important when it comes to selecting energy stocks — just ask Cabot Oil & Gas (COG). The firm is one of the first and largest players in the Marcellus, where COG has seen the biggest production gains — to the tune of a 61% rise in the third quarter.

However, those gains are set to continue as COG just finished a massive capex spending plan. And like SWN, Cabot's costs remain one of the lowest in the industry — $1.20 per Mcf. The company plans on spending $1.475 billion on future drilling and well completion, which should help move the needle on cash flows and profits at the natural gas company.

Analysts at Goldman Sachs (GS) estimate that COG should produce pre-tax profits of $515 million in 2013 and jump to $800 million next year. That implies a $48 price target for the energy stock — $14 higher than today.

Ultra Petroleum

For those investors looking for natural gas companies with a bit more "oomph,” energy stock Ultra Petroleum (UPL) could be the prime portfolio play. As of the end of 2012, UPL's mix of production included about 96% dry natural gas. While that seems awfully scary given just how much prices for the fuel have swayed, Ultra is a low-cost leader … just like both SWN and COG.

In fact, UPL's finding and development costs are a little more than $1 per McfE, and it only needs natural gas to be at $2.88 to "break even" on its wells. Other natural gas companies — like kingpin Chesapeake (CHK) — need prices to be around $4 to make a profit.

Now, UPL has recently made moves to purchase more oil reserves and boost its overall product mix. The firm paid $650 million for acreage in Utah’s Uinta Basin, which features many of the same operating dynamics and low costs as UPL's current mix of shale assets. Ultimately, those oilier acres should help smooth out earnings for the stock and help produce higher cash flows. But much of Ultra's future production will still be tied to natural gas, making it one of the best natural gas stocks to buy if you want to play rising demand.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.