Speculating on Natural Gas

Natural gas turned around despite what analysts thought. Now, it’s in bullish territory: just below $8 per million BTUs. With prices that high, Cramer’s looking for a good way for you to play the trend.

Exposure to the services side is probably the way to go, he says, so a driller might be a good pick. Sure, there’s Halliburton and even Nabors Industries, but Cramer thinks something a bit more speculative would probably be better. Something like McMoRan Exploration, which was spun off by Freeport McMoRan 13 years ago.

MMR is a gambling man’s natural gas play, Cramer says. It focuses on high-risk-high-reward wells that could potentially more than double its reserves, provided nat gas is found. It’s expensive to drill with the kind of focus that MMR has, so it doesn’t make much sense to invest when natural gas prices are below $6. But now that they’re hovering near $8, MMR is more attractive.

The stock is just $2.90 off its low, but Cramer’s not worried it will fall through that. The bad news is already priced in, he thinks. So the reason to own McMoRan Exploration is for the massive potential upside that would come if it struck the right reserve. It’s this calculated bet – and not the hope – that makes MMR a buy. That and the fact that it has not research sponsorship – none. So Wall Street’s sleeping on this one.

Another reason to find faith in the company is that management receives no compensation. It’s shares and options and that’s it. So if they want to get paid, they better perform. Plus, the board has at least one star executive in Gerald J. Ford, upon whom Cramer heaps massive praise.

Bottom Line: If you want a speculative way to play the high natural gas prices, then Cramer suggests McMoRan Exploration.

Jim's charitable trust owns Halliburton and Freeport McMoRan.

Questions? Comments? madmoney@cnbc.com

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  • Jim Cramer

    Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

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