Stock of the Month for November -- Range Resources Corporation (RRC)

My pick for stock of the month for November is Range Resources corporation (Symbol RRC). Range Resources is an independent natural gas exploration and development company that has properties in the southwest and in the Appalachian areas. Its current production comes from many different sources, but the reason to buy the stock is its large position in the Marcellus shale which lies under mostly Pennsylvania, New York, and West Virgina. RRC is one of the largest operators in the Marcellus and it has enormous up side potential as a result. In fact, because RRC has large positions in the southwestern part of Pennsylvania, an area where the marcellus has a high amount of natural gas liquids, it is even better placed to do well in that play.

If, as I assume, the Republicans take congress and the Pennsylvania legislature and governorship on Tuesday, much of the threat of new regulations that will thwart the development of the Marcellus Shale will be erased. If elected governor of Pennsylvania, the Republican Corbett has already made clear that he want to see gas drilling in that state proceed quickly. The bogus environmentalist threats to drilling will be removed from the state political scene for at least four years. Indeed, the only threat left will come from regulatory action by the EPA, and while that threat cannot be ruled out, it is not likely in my opinion.

If RRC is able to drill without political limitation in the Pennsylvania region of the Marcellus, it will be able to ramp up its production quickly. This will not necessarily mean high short term profits, since the price of nat gas is very low at the moment. In fact, it is at a sustained low when compared to the price of oil. But that very price differential should push an increase in consumption of the fuel over time with the result that natural gas prices should stabilize or even rise a bit. In the longer term, market forces will surely drive higher usage of nat gas and a reduction of oil based energy.

It is the longer term prospects of natural gas that makes RRC so attractive. Once the political risks are taken out of the Marcellus, it is likely that more of the major oil companies will seek entry into that major play. That makes RRC a very attractive target for acquisition. Over the next 18 months, we are likely to see a move by the majors and RRC could be among the first companies gobbled up.

In summary, RRC is not a short term investment. Its price will be volatile, although you can use its options to lessen the fluctuations. The predominant market forces, however, will give this stock a strong push up so long as the US economy does not revert to recession. If you invest, it is important to keep at least a significant portion of your position free from limitations like covered calls, since a big part of the attraction here is the prospect of a take over at a big premium to the current price.

Disclosure: I am long RRC. It is the single biggest energy holding in the accounts I manage.