This big oil and nat gas producer is prioritizing stock repurchases. So we’re buying alongside it
We’re buying 150 shares of Coterra Energy (CTRA), at roughly $25.43 each. Following Wednesday’s trade, Jim Cramer’s Charitable Trust will own 1,150 shares of CTRA, increasing its weighting in the portfolio to 1.1% from 0.95%. We’re finally redeploying some of the “energy funds” we raised when we exited our Devon Energy position earlier this month. We’re adding Coterra Energy and upgrading the stock back to a 1 rating . One reason why we preferred to keep Coterra instead of Devon is the former’s updated capital return framework. Back in February, with shares down about 35% from their June 2022 highs, Coterra announced a shift in its capital return framework to allow the company to take advantage of the stock’s depressed valuation. Instead of paying the bulk of its extra cash flow back to shareholders through a small base dividend and hefty variable dividend, management pivoted. The new strategy prioritizes the base dividend, which was increased by 33%, followed by share repurchases — and finally, if there is excess cash flow left over, the variable dividend. While the de-emphasis of the variable dividend means less cash back into our hands every quarter, we’d rather see a company step up buybacks when the stock is cheap and at a low than when it is overpriced. That’s how a company creates more long-term value for its shareholders. Coterra Energy has outperformed most of its peers year to date, which can be traced, in part, back to that change in its capital return framework. If the company is willing to buy more stock around these levels because it sees a valuation disconnect, then we want to be on its side buying along with it. CTRA YTD mountain Coterra Energy (CTRA) YTD performance As for our view on oil and natural gas, the underlying commodities that drive Coterra’s earnings and cash flow higher and lower, respectively, we’ve become a lot more constructive on the price of oil following the surprise decision from OPEC+ to cut its production earlier this month. But oil only represented about one-third of Coterra’s revenues in the fourth quarter of 2022. That’s because Coterra is more of a “gassy” exploration and production (E & P) company and, therefore, is more likely to trade based on the movements in natural gas . The commodity remains highly volatile and daily mid-single-digit percent swings have become the norm. Currently, nat gas is around $2.24 per 1 million British thermal units. Back in August, it soared to all-time highs above $10. @NG.1 YTD mountain Natural gas YTD performance We think the upside move outweighs the downside potential as we have seen an unwillingness from the commodity to break below $2 and stay there. Longer term, we remain steadfast in our belief in the vital role nat gas and liquid natural gas (LNG) have in national security. Many more LNG export facilities are expected to come online in the United States next year, supporting prices as we get closer to their dates. (Jim Cramer’s Charitable Trust is long CTRA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
