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Investment Ideas for the Shale Gas Revolution

Can Dow Sustain Record Highs?
Can Dow Sustain Record Highs?

A U.S. energy revolution is underway as the country takes advantage of its abundant natural gas supplies. Here are some investment ideas.

"The shale gas that we found in this country has given us an enormous competitive advantage that will last for a number of years," Kent Croft, Croft Funds chief investment officer, told CNBC. "There are some companies that you can in and buy into at very reasonable valuations and hold for a very long time as part of a long-term portfolio."

The Energy Information Association estimates that shale gas production will climb from 8.6 trillion cubic feet this year to 16.7 trillion cubic feet in 2040.

As production ramps up, Croft said the biggest bang for your buck over time might be in the exploration and production names like $3 billion market cap Ultra Petroleum, pipeline company Williams and Quanta Services, a $6.3 billion market cap company that builds out both pipelines and electrical transmission lines.

Croft said Williams, a $21.9 billion market cap company, will "generally benefit from gas being used more often."

For investors looking for income in the energy sector, Barbara Marcin, Gabelli Dividend Growth Fund portfolio manager, likes ConocoPhillips which sports a a 4.5 percent yield. "As we wait for higher gas prices at some point over the next couple of years, it will increase production," she told CNBC.

(Read More: Shale Gas Boom Now Visible from Space)

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Market Fights to Keep Winning Streak Going

But investors should be wary of valuations for the group more broadly, warned Alliance Bernstein market strategist Vadim Zlotnikov on Monday. "If the valuations get out of hand as if they reflect a pure growth status of these companies, I would tend to pull back," he said.

"Likewise, if oil drops below the marginal cost of production, which for WTI is in the low $90s, I would become much more positive on energy," he added. "But with oil above marginal cost above that, I'm neutral."

U.S. crude is trading at about $93 a barrel.

Zlotnikov still sees expects the overall economy to benefit modestly from the U.S. shale gas revolution. Based on AllianceBernstein's analysis, the firm thinks it can add about half a percentage point to economic growth and maybe half of that in terms of employment growth.

"It's clearly a positive. It's moving in the right direction," Zlotnikov said. "I'm not sure it's a true growth theme in itself."

By CNBC's Justin Menza

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