The oil-energy sector is fraught with uncertainty, as many companies within it are highly susceptible to extreme fluctuations in oil and natural gas prices. To illustrate this volatility, consider the dramatic swings in oil prices since the onset of the COVID-19 pandemic. On April 20, 2020, the price of West Texas Intermediate crude plummeted to an unprecedented negative $36.98 per barrel, only to surge to $123.64 per barrel by March 8, 2022, as economies gradually reopened.
However, this volatility doesn't mean investors should avoid the sector altogether. Midstream energy companies, such as The Williams Companies Inc. WMB, Kinder Morgan Inc. KMI, and Enbridge Inc. ENB, have demonstrated resilience in navigating market fluctuations. These companies are well-positioned for long-term gains despite the inherent challenges in the energy market. Notably, oil price data are per the U.S. Energy Information Administration.
Can Midstream Players Combat Energy Market Volatility?
Unlike the business of upstream and downstream energy companies, operations of midstream energy players like the companies mentioned above have significantly lower exposure to oil and gas price volatility.
Midstream companies’ pipeline and storage assets are secured under long-term take-or-pay contracts. These contracts ensure that shippers pay for the capacity reserved, whether they utilize it or not, which provides a steady stream of revenue. This structure allows companies to generate stable earnings, insulated from fluctuations in the volume and prices of oil and natural gas transported, offering significant stability to their bottom line.
It's an opportune moment for investors to keep an eye on companies within the midstream energy space. Using our proprietary Stock Screener, we've identified three stocks that are well-positioned for growth. All of these stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3 Midstream Stocks to Keep an Eye on
WMB's Leadership in Natural Gas Transport
The Williams Companies generates stable fee-based earnings since it transports one-third of the natural gas consumed in the United States. Having ownership and operating interests in pipeline networks spanning 33,000 miles, WMB transports natural gas from the prolific basins in the United States to the end market. The leading midstream player is thus well-positioned to gain from rising clean energy demand since the transported natural gas is used for generating electricity, heating rooms and cooking.
In recent years, WMB has consistently provided investors with higher dividend yields compared to the oil-energy sector, demonstrating the company's strong commitment to returning capital to shareholders.
KMI: Shaping the Landscape of Natural Gas Infrastructure
Kinder Morgan’s stable business model is reflected in its natural gas transportation activities, where its pipeline networks are responsible for transporting roughly 40% of the commodity produced in the United States. Throughout North America, KMI’s pipeline network is spread over 79,000 miles, transporting natural gas, gasoline, crude oil, carbon dioxide and more, thereby securing long-term, stable, fee-based earnings.
Most of the time over the past several years, Kinder Morgan has been rewarding investors with higher dividend yields than the oil-energy sector.
Enbridge’s Project Backlog Drives Growth
Enbridge is well-regarded for its low-risk business model, offering stable and predictable cash flows. This stability is largely due to long-term contracts that provide consistent fee-based revenues, thereby continuously generating wealth for shareholders. The midstream energy giant enhances its cash flows with a robust pipeline of secured midstream projects worth C$24 billion, scheduled to come online through 2028. Over the past year, Enbridge has consistently provided investors with higher dividend yields compared to the industry average.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Williams Companies, Inc. (The) (WMB) : Free Stock Analysis Report
Enbridge Inc (ENB) : Free Stock Analysis Report
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
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