CNX Gas has been trading independently since January 2006, though Consol still maintains an 81% interest in the company. This is where the low float comes in. There are only 150 million shares; Consol owns 81% of them. Consol is no dummy. The spinoff helped unveil the premier gas business of CNX Gas to an investor community that eemed to ignore it when it was buried in Consol:

Before it became independent, CNX Gas vented coal bed methane for Consol for over 25 years. It used to be that coal companies would just vent off the methane so their miners could get at the coal. Over time, coal miners have learned to capture the methane.

CNX Gas, then, has over 20 years of experience in this business. It has a long history of 99% success in drilling coal bed methane assets. And its close relationship with Consol is probably a positive, as it can work closely with the coal mining operations to maximize its productivity.

More Goodies

CNX Gas has the lowest all-in costs in the industry. This means CNX Gas enjoys wide profit margins and generates
substantial free cash flow. (That's money you can put in a bank account and spend, as opposed to just earnings — there's a difference, but many investors don't pay attention to it. As a former lender at a pair of staid banking institutions, you can be sure I do.)

Reserve life is over 22 years — almost double the industry average. Again, you don't have to worry about exploration risk. CNX Gas doesn't really need to find new gas. It just needs to develop what it has. It also has a deep inventory of low-risk projects (at depths of less than 5,000 feet) with over 80% of its acreage undeveloped. All that means CNX Gas has the ability to grow 15% or more per year for many years.

The company should generate around $1.20 per share in free cash flow this year. Few in the industry can match that kind of cash flow generation and growth. Even if the price of gas goes nowhere, CNX Gas could double
earnings over the next three years just from increasing production.

My estimate of net asset value is about $33 per share (including proved, probable and possible reserves) — and it's an estimate, even though numbers lend it the illusion of precision. Based on a $26 share price, that's a
nice 25% discount. But that's probably too low, given the long-term growth rate. Net asset value should increase as it continues to grow. Over the next three years, I'd expect net asset value to climb over $40 per share, even if
gas goes nowhere. Over time, I'd also expect that discount to close as CNX Gas executes.

Otherwise, you own a free call option on higher gas prices. Should gas prices soar, your shares in CNX Gas should do even better. If not, I'd still say you own a stock with little downside and a great shot at a 33% gain in
about a year's time, with more to follow.
Recommendation: Buy CNX Gas (CXG:nyse) up to $33.