MORGAN STANLEY: Here Are The 16 Best Stocks For Playing The American Shale Boom

Santorum north dakota shaleREUTERS/Harrison McClaryA piece of North Dakota shale

Thanks to technological developments in hydraulic fracturing, drillers have been able to extract natural gas from America’s shale basins.

This has kept the energy production industry busy while domestic gas prices have stayed very low.

“Relentless supply growth and tepid demand led us to reduce our 2015 forecasts,” Morgan Stanley analysts wrote. “Thanks to significant growth in US natural gas production, natural gas inventories remain on pace to reach just over 3.5 Tcf by the end of October. Given continued very strong gas production, and delivery, growth for the balance of 2014 and in 2015 is expected to become the major headwind for prices, particularly under normal weather.”

With volatility returning to the stock markets, the best idea for investors may be to play long term themes like the ongoing American Shale Gas Revolution.

“The advantages of low US natural gas prices are evident in multiple industries, including refining, chemicals, fertilizers, gas- fired power plants, gas export and gas transportation,” write the analysts.

Morgan Stanley picked 16 stocks they believe are best positioned for this big economic story.

Agrium Inc.

Ticker: AGU

Price Target: $US101.00

Market Cap (US$mm): $US12,288

Dividend Yield: 3.4%

2015 P/E Ratio: 11.8

'Agrium has a unique strategic position to meet widespread agricultural demand, with over half a million

customers globally, significant advantages in our nitrogen and potash businesses and a complementary

portfolio of products and service,' said Agrium CEO Chuck Magro in its second quarter earnings report. 'Agrium continues to focus on maximizing operational and financial efficiencies across our complementary portfolio of assets, including optimization of working capital and operating costs. Combined with Agrium's current growth projects, we believe these initiatives will drive higher free cash flow and subsequent shareholder returns.'

Calpine Corp.

Ticker: CPN

Price Target: $US31

Market Cap (US$mm): $US9,212

Dividend Yield: 0.0%

2015 P/E Ratio: 19.0

'Looking at the balance of the year, our solid operations and robust hedging program continue to mitigate the effects of an unseasonably mild summer in Texas and the Mid-Atlantic, enabling us to reaffirm our 2014 guidance,' said Calpine CEO Thad Hill in its second quarter earnings report. 'Longer-term, Calpine remains well positioned to capture value as the sound fundamentals in each of our core markets reassert themselves,' said Hill.

Celanese Corp.

Ticker: CE

Price Target: $US65.00

Market Cap (US$mm): $US9,329

Dividend Yield: 0.9%

2015 P/E Ratio: 11.4

'Our excellent performance through the first six months of the year gives me confidence that we can generate adjusted earnings per share growth in the range of 15 to 17 per cent in 2014,' said Celanese CEO Mark Rohr in its second quarter earnings report. 'We now increase our focus on the Celanese-specific initiatives for 2015 that will help offset the expected headwind related to the expiration of a methanol contract in mid-2015.'

Chart Industries

Ticker: GTLS

Price Target: $US90

Market Cap (US$mm): $US1,933

Dividend Yield: 0.0%

2015 P/E Ratio: 16.5

'We continue to see opportunities from shale gas development, whether dry, wet or associated with tight oil production,' said Chart CEO Samuel F. Thomas on its second quarter earnings call. 'The recent introduction of Bakken flare gas regulations in North Dakota is a good example.'

Cheniere Energy Inc.

Ticker: LNG

Price Target: $US85.00

Market Cap (US$mm): $US17.856

Dividend Yield: NM

2015 P/E Ratio: NM

'We continue to make progress on the commercialization and development of the Corpus Christi Liquefaction Project, which is being designed for up to three Trains with expected aggregate nominal production capacity of approximately 13.5 mtpa of LNG,' the company said in its second quarter earnings report.

Energy Transfer Equity, LP

Ticker: ETE

Price Target: $US72.00

Market Cap (US$mm): $US33,770

Dividend Yield: 2.6%

2015 P/E Ratio: 31.4

'While the near term natural gas price outlook may continue to be soft with pockets of upsides from time to time as we experienced in the first quarter of this year, we're extremely optimistic that our transportation pipelines will drive much stronger operating results as demand is expected to increase due primarily to commencement of LNG exports of the Gulf Coast, increased demand from Mexico by directionally flowing our pipeline systems to transport Marcellus and Utica gas to the Gulf Coast, further environmental pressure to convert coal-fired power generation to natural gas generation and increased petrochemical demand along the Gulf Coast,' said Energy Transfer Equity's CFO Martin Salinas, on its second quarter earnings call.

GasLog Ltd

Ticker: GLOG

Price Target: $US29.00

Market Cap (US$mm): $US1,862

Dividend Yield: 2.1%

2015 P/E Ratio: 27.4

'At GasLog, we will continue to look for attractive opportunities to grow our fleet and to place long-term contracts against our vessels which make them eligible for drop-down to the MLP, thus maintaining the partnership's visible growth pipeline,' said GasLog CEO Paul Wogan on its second quarter earnings call. 'The forecast expansion of the LNG industry combined with GasLog's experienced technical platform, proven track record of execution and willingness to drive consolidation in the market mean that we are confident that we will continue to see attractive growth opportunities that will benefit the shareholders of both GasLog Ltd. and GasLog Partners.'

Golar LNG Ltd

Ticker: GLNG

Price Target: $US67.00

Market Cap (US$mm): $US6,310

Dividend Yield: 2.7%

2015 P/E Ratio: NM

'We have been getting excellent feedback from our key charterers on our technical performance. Our uptime -- meaning technical availability for vessels under contract -- is virtually 100%,' said Golar CEO Doug Arnell on its second quarter earnings call. 'Outstanding safety record. And again, our vessel vetting statistics are very high, along with customer satisfaction reports, which we canvas on a regular basis.'

LyondellBasell Industries N.V.

Ticker: LYB

Price Target: $US120.00

Market Cap (US$mm): $US58,085

Dividend Yield: 2.4%

2015 P/E Ratio: 13.8

'Industry fundamentals remain strong, and we continue to execute on our investment program,' said LyondellBasell CEO Jim Gallogly in its second quarter earnings report. 'During the third quarter we expect to begin production from the 800 million pound per year La Porte ethylene expansion. This is the first of three ethylene expansions and continues to put us well ahead of new greenfield plants pursued by others in the industry,' Gallogly added.

MarkWest Energy Partners LP

Ticker: MWE

Price Target: $US74.00

Market Cap (US$mm): $US15,464

Dividend Yield: 4.6%

2015 P/E Ratio: 43.1

'The completion of five major infrastructure projects in the Marcellus and Utica Shales over the past three months has provided our producer customers the ability to continue expanding their rich-gas development programs,' MarkWest CEO Frank Semple said in its second quarter earnings statement. 'Due to their ongoing success, we expect overall system volumes to continue to rapidly expand and provide us with unique opportunities to significantly grow cash flow and achieve future distribution growth targets.'

Phillips 66

Ticker: PSX

Price Target: $US93.00

Market Cap (US$mm): $US46,840

Dividend Yield: 2.3%

2015 P/E Ratio: 9.9

'We're executing our plans, we're continuing with our commitments we laid out two years ago,' said Phillips 66 CEO Greg Garland on its second quarter earnings call. 'We have a strong balance sheet, $US5 billion of cash, and a debt-to-capital ratio at the low end of our targeted range. We have confidence that we have the resources and the opportunities to deliver on our plans to grow our higher-valued businesses, while rewarding the owners of our companies with secure and growing distributions.'

Potash Corp of Saskatchewan Inc

Ticker: POT

Price Target: $US33.00

Market Cap (US$mm): $US29,925

Dividend Yield: 4.0%

2015 P/E Ratio: 18.3

'Looking ahead, we will focus on improving our position and optimising our world-class assets to benefit all stakeholders,' said Potash Corp CEO Jochen Tilk in its second quarter earnings statement. 'As a team, we will build on our strengths and take thoughtful and calculated steps to enhance long-term shareholder value.'

Rentech Nitrogen Partners LP

Ticker: RNF

Price Target: $US16.00

Market Cap (US$mm): $US486

Dividend Yield: 5.2%

2015 P/E Ratio: 11.2

'Our wood fibre businesses continue to grow,' said Rentech CEO Hunt Ramsbottom in its second quarter earnings statement. 'Construction of our Canadian wood pellet projects is nearing completion, and we will begin commissioning the plants in the second half of this year. Integration of our recently acquired New England Wood Pellet business is going smoothly, and it is performing as well as we expected. We are focused on execution at our operating businesses while pushing forward on specific opportunities to significantly expand our wood chipping and pellet businesses.'

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