Energy investors are optimistic about the reopening of economies but the positivity is unlikely to stay unless there is any drug or vaccine that will permanently beat COVID-19. But even if the market witnesses a steady return to normal life through the second half of 2020, the oil supply glut is likely to continue to weigh on the commodity’s price.
Gloomy Outlook for Energy Business
The coronavirus pandemic has dented worldwide energy demand. This coupled with plentiful crude oil supply, has kept the commodity in the bearish territory. Notably, the West Texas intermediate (WTI) crude is trading marginally above the $35-per-barrel mark compared with more than $60-a-barrel at the start of 2020.
Low oil prices are thus little incentive for explorers and producers to hire rigs for drilling operations in shale plays. Naturally, oil resources have been persistently witnessing the removal of rigs by domestic explorer. In its latest weekly release, Baker Hughes Company (BKR) reported successive decline in the oil rig tally in the United States for 11 weeks. This depicts an unfavorable upstream energy business scenario, which is unlikely to improve anytime soon.
But There is Hope
Not all stocks in the energy sector will suffer due to the virus outbreak as midstream energy players are relatively less exposed to volatility in oil and gas prices.
Most of the contracts, being awarded by shippers to the midstream firms for pipeline and storage assets, are for the long term. Thus, midstream companies will continue to generate handsome fee-based revenues since their business models are relatively more stable.
Stocks to Buy
Four stocks have been shortlisted here, all of which carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Headquartered in Tulsa, OK, The Williams Companies, Inc. WMB is the operator of a gigantic network of pipeline assets which spreads over more than 30,000 miles. Notably, the company carries roughly 30% of natural gas that is being consumed in the United States, generating stable fee-based revenues.
We expect the stock to see earnings growth of 5% in the next five years.
Enbridge Inc. ENB, headquartered in Calgary, Canada, is a leading midstream energy infrastructure provider in North America. It generates handsome fee-based revenues since it has a giant network of pipeline assets, transporting roughly 25% of crude volumes being produced in North America. The pipeline networks also carry roughly 20% of natural gas that are consumed in America. Moreover, through its gas distribution and storage properties, the company is capable of serving as many as 3.8 million retail customers in Ontario and Quebec.
DCP Midstream, LP DCP, headquartered in Denver, CO, is primarily involved in midstream business with ownership in gathering and processing assets. Notably, the partnership is among the leading natural gas processing firms in the domestic market.
Plains GP Holdings LP PAGP, headquartered in Houston, TX, owns a non-economic controlling general partner interest in Plains All American Pipeline, L.P. PAA. Through this ownership interest, Plains GP has access to a huge network of pipeline and terminalling assets.
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Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report
Enbridge Inc (ENB) : Free Stock Analysis Report
Williams Companies, Inc. The (WMB) : Free Stock Analysis Report
Baker Hughes Company (BKR) : Free Stock Analysis Report
Plains Group Holdings, L.P. (PAGP) : Free Stock Analysis Report
DCP Midstream Partners, LP (DCP) : Free Stock Analysis Report
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