Investors looking to stash a natural gas winner in their portfolios might want to head north to Canada and look at Encana – a potential up-and-coming, but recently bruised stock in the minds of Wall Street analysts.

Before we start digging deep into Calgary-based Encana, let’s set the stage with a look at some of the energy company’s primary fundamentals

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Encana at a Glance

Stock price (as of 1/3/12) $19.25

Year-to-date stock return (as of 12/29/11) 35.0%

One-year target estimate $25.4

Revenues $7.44 billion

Market cap $14.7 billion

Price/earnings ratio 51.7

Est. 5-year growth rate 5%

Dividend yield 4.3%

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The word on Encana seems to be getting out with some of Wall Street’s heaviest hitters lining up to tout the stock. Raymond James recently graded Encana as “outperform” and has issued a target price of $28.00 per share.

Then there’s billionaire hedge fund investor Thomas Steyer, founder of Farallon Capital Management. Steyer sees Encana as a “no brainer” dividend play – he favors stocks in his fund that have at least 3% dividend yields, and stocks that offer a strong capital gains picture. In the third quarter of 2011, Steyer had owned about $22 million in ECA stock, before trimming his position back to $14 million as the stock underperformed in the third quarter of 2011 (it actually finished the year down 30%). But, Steyer is hanging on to his ECA position, with an eye for upward momentum in 2012.

Why the bullishness on a stock that has lost so much value in 2011?

For starters, Encana, Canada’s biggest natural gas company, is getting out of North Texas, divesting about $860 million in assets from Encana Oil & Gas (USA). It also struck a deal to sell its Barnett shale assets for about $975 million – a deal that should be completed by the first quarter of 2012.

Along with other sales in the region, Encana is expected to garner $3.5 billion from its divesting efforts, a cash windfall that highlights Encana’s new business outlook – one it hopes will ignite interest in the company’s stock.

This from a Zacks Equity Research note on December 27, 2011:

These transactions highlight Encana’s strategy of reforming its asset portfolio for long-term gain. The company is targeting to divest its low-profit generating assets and focus on the lucrative core business of growing natural gas and liquids production. Proceeds from these dispositions are expected to strengthen the company’s balance sheet and render greater financial stability in 2012.

ECA’s stance as a major player in the now booming North American natural gas market makes Encana “a low risk, long-life and sustainable growth profile” for investors, according to Zacks.

While Zacks is sticking with its long-term neutral recommendation on Encana, the analytical firm pegs ECA as a short-term hold right now.

Still, there’s no sugar-coating the fact that Encana’s stock had a rough year in 2011. Tracking ECA’s stock from January through December was a job only a smart short-seller would love. The stock began the year at about $30 per share, spiked to $34 per share in April, then settled into a downward drift to its current sub-$20 range as the new year opens.

Some analysts point to Encana’s bet on natural gas prices, which haven’t really kept pace with the price of crude oil over the past year. The company got out of the oil business, selling its oil operations to Cenovus Energy two years ago. But the price of natural gas stagnated just as ECA was tossing all its chips into the natural gas pile. Sure, it had a strong poker hand, but the pot was weak, and the big institutional players were disinterested – most likely looking for a bigger game.

Are natural gas prices changing? Not right now.

Most of the data points to a softening price for natural gas in January, with natural gas prices at some of the lowest levels in years, thanks to an over abundance of supply and a drop in demand thanks to the warmer air floating across the U.S. in December.

“Natural gas prices didn’t recover from the sharp falls of past months and during December they also declined,” notes the natural gas web site, TradingNRG.com. “Furthermore, during December natural gas prices have underperformed not only compared with recent months’ prices, but also compared with previous years’ price levels. One of the reasons is probably the late arrival of the winter, but it’s only one aspect of the sharp drop in natural gas prices.”

But those days could soon be over. In a Jan. 3 interview on CNBC, one of the energy industry’s powerful figures said that gas prices “are as low as they are going to go right now.”

That from Gulf Oil CEO Joe Petrowski, who, while noting that refining margins are at 10-year lows, says the way the energy industry looks at natural gas is changing – and that should really benefit major natural gas producers like Encana.

Citing an “abundance of natural gas,” Petrowski says natural gas has a bright, but vastly different future. "I think a lot of people in our industry are investing in ways to start letting natural gas become a transport fuel," he said. "That will be the story in 2012 that will start to bubble to the surface. Hopefully we can diversify away from petroleum as the only transport fuel."

Petrowski is practicing what he preaches. Gulf’s own transport trucks are already transitioning from oil to natural gas. CNBC notes that one truck burns through about 12,000 gallons of diesel fuel annually. The switch to natural gas could mean savings of about $24,000 per truck annually, Petrowski says.

That scenario, plus already higher natural gas prices in Europe and Asia, and a turn toward liquid natural gas by ECA, is what’s attracting investors to Encana. Its third-quarter numbers beat analyst’s expectations, and that’s a good sign going into a stronger portion of the calendar for natural gas providers like ECA.

For Encana, the brightening natural gas landscape couldn’t have come a moment too soon. Sooner or later, investors may be poised to take full advantage.