The worries in the Middle East have continued to move markets in the last week, and despite some worrisome moments as well as signs of hope, the markets are little changed since we last wrote. The S&P 500 fell 0.2%, the Dow was virtually unchanged and the Nasdaq eked out a small gain.
The Stock – EQT Corp (EQT)
We continue to think that natural gas stocks have a chance to loosely follow in the footsteps of their oil-heavy peers, which had a great run years ago as they limited CapEx and focused on producing mounds of free cash flow, resulting in huge (and far more reliable) dividends and share buybacks, usually with pristine balance sheets, too. Leading gas players these days are in a similar position, having slashed costs and boosted efficiencies while waiting for natural gas prices to get out of the doldrums—and this year they have, with prospects for much greater gas demand (mainly from booming electricity needs) bolstering investor perception of the firms.
EQT is one of the big dogs of the sector, with around one million net acres in Appalachia and northeast Pennsylvania that have some of the best economics out there (free cash flow breakeven under $2 natural gas) while also possessing a seemingly never-ending runway of expansion (30 years of de-risked inventory!) while being able to cut or boost production in fairly short order based on pricing. There are some other company-specific factors here (declining costs as a percent of output should give a big free cash flow lift in the years ahead on its own), but of course natural gas prices are a huge driver—EQT believes it can bring in an average of $2.75 of free cash flow per share annually for the next few years even at $3.50 gas, with that figure spiking to nearly $4 per share annually at $4.25 gas (current prices around $3.90), and the way these things go, even that should prove conservative as the firm outpaces efficiency targets.
The one negative here is debt ($8.1 billion of net debt, though that’s falling rapidly), which is eating up a lot of that free cash flow for now—but big picture, the company looks like a cash cow even in the current environment, with huge upside should natural gas prices rise and stay up, likely leading to bigger payouts (current dividend 1.1%) and share buybacks down the road.
Technical Analysis
Like its natural gas peers, EQT topped in 2022 and spent most of the next couple of years meandering sideways-to-down before a fresh uptrend emerged after the market bottom last August; in fact, the stock made it all the way back to multi-year highs in January. Things got hectic after that, but overall, EQT held up well given the market maelstrom, and after a few weeks of very tight action, shares popped to new highs last week. Stop – 52
The Covered Call Trade
Buy EQT Corp (EQT) Stock at 60, Sell to Open August 60 Strike Calls (exp. 8/15) for $3, or a Net Price of 57 or less
Static Return: $300 per covered call (5.26%)
Breakeven: 57
Covered Call Return (if assigned): $300 per covered call (5.26%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the approximate Net Price, or 57 or less. (In this case 60 minus 3 = 57. Or another example is you could pay 60.25 for the stock and sell the call for 3.25, which also equals 57.)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Birkenstock (BIRK) | 56.5 | 52 | 51 | July 55 -- $4 | $0.75 |
| Amer Sports (AS) | 38 | 37.5 | 31.5 | July 40 -- $2 | $0.80 |
| Rocket Lab (RKLB) | 26.75 | 33 | 22 | July 25 -- $3.55 | $8.50 |
| Pan American Silver (PAAS) | 28.5 | 28 | 25.5 | August 29 -- $2 | $1.50 |
| TechnipFMC (FTI) | 35.35 | 34 | 30 | July 35 -- $1.65 | $1.00 |
The next Cabot Profit Booster issue will be published on July 1, 2025.
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