Too Early for Rally in Nat-Gas Related Stocks - Analyst

May 17, 2012 9:48 AM EDT
Analysts at Canaccord Genuityā€¸ see any rally in gas related stocks as a head fake rather than a sustainable move.

In a recent report, which focused primarily on Canadian equities, they cited risks that inventory levels in natural gas could reach capacity this summer. High valuation in the stocks will also be a drag on any rally, and lack of M&A activity is another sign that the bottom is not in place for gas stocks, say analysts.

"On average, gas stocks gained about 20% through late April/early May; however, they have given back more than half of their gains over the past two weeks, supporting our view that the equity rally may have been somewhat premature."

To broadly play natural gas equities, investors should look to ETF iShares Dow Jones US Oil & Gas Ex Index (NYSE: IEO).

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