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Bet on 3 Midstream Stocks as Energy Market Remains Volatile
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Broad inflationary pressures are increasing. To rein in inflation, which is near a 40-year high mark, the Federal Reserve announced the approval of its third successive interest-rate rise of 0.75 percentage points. There are signals from the Fed that in the upcoming meetings, additional significant rate hikes are likely, thereby increasing fears of recession and spurring market volatility. The energy sector is known for its volatile business scenario, and a slowdown in economic activities could significantly dent energy fuel demand.
Companies belonging to the sector have been witnessing a choppy business environment since the onset of the coronavirus pandemic. The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The commodity’s price plunged to a negative $36.98 per barrel on Apr 20, 2020. However, with the rapid developments of vaccines by the scientists, which in turn led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate (WTI) crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration.
Considering the backdrop, it would be wise for investors to bet on midstream stocks like Enterprise Products Partners LP (EPD - Free Report) , PBF Logistics LP and MPLX LP (MPLX - Free Report) .
Midstream Energy Players to the Rescue
Although the fate of energy players is highly dependent on oil and gas prices, stocks belonging to midstream space have lower exposure to volatility in commodity prices. This is because midstream players generate stable fee-based revenues since the transportation and storage assets are being booked by shippers for the long term. Thus, their business model is relatively low-risk, signifying considerably lower exposure to both oil and gas price and volume risks.
Enterprise Products Partners: Enterprise Products generates stable fee-based revenues from its extensive pipeline network across more than 50,000 miles, transporting natural gas, natural gas liquids (NGLs), crude oil petrochemicals and refined products.
The midstream infrastructure provider also has storage assets that can hold more than 260 million barrels of NGL, petrochemical, refined products and crude oil. These assets can also store 14 billion cubic feet of natural gas. Moreover, Enterprise Products has $5.5 billion of major capital projects under construction that are likely to provide incremental fee-based revenues.
MPLX LP: MPLX has ownership and operating interests in midstream energy infrastructure and logistics assets, thereby generating stable cashflows. With a strong focus on returning capital to unit holders, MPLX recently announced a repurchase authorization for an incremental $1 billion of units.
PBF Logistics: PBF Logistics is a growth-oriented master limited partnership having ownership and operating interests in crude oil and refined petroleum products terminals, pipelines and storage facilities. To strengthen its financials, PBF Logistics announced, along with second-quarter results, the reduction of its outstanding balance of the revolving credit facility by $70 million year to date.
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Bet on 3 Midstream Stocks as Energy Market Remains Volatile
Broad inflationary pressures are increasing. To rein in inflation, which is near a 40-year high mark, the Federal Reserve announced the approval of its third successive interest-rate rise of 0.75 percentage points. There are signals from the Fed that in the upcoming meetings, additional significant rate hikes are likely, thereby increasing fears of recession and spurring market volatility. The energy sector is known for its volatile business scenario, and a slowdown in economic activities could significantly dent energy fuel demand.
Companies belonging to the sector have been witnessing a choppy business environment since the onset of the coronavirus pandemic. The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The commodity’s price plunged to a negative $36.98 per barrel on Apr 20, 2020. However, with the rapid developments of vaccines by the scientists, which in turn led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate (WTI) crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration.
Considering the backdrop, it would be wise for investors to bet on midstream stocks like Enterprise Products Partners LP (EPD - Free Report) , PBF Logistics LP and MPLX LP (MPLX - Free Report) .
Midstream Energy Players to the Rescue
Although the fate of energy players is highly dependent on oil and gas prices, stocks belonging to midstream space have lower exposure to volatility in commodity prices. This is because midstream players generate stable fee-based revenues since the transportation and storage assets are being booked by shippers for the long term. Thus, their business model is relatively low-risk, signifying considerably lower exposure to both oil and gas price and volume risks.
We have employed our Stock Screener to zero in on three stocks belonging to the midstream energy space. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3 Stocks in the Spotlight
Enterprise Products Partners: Enterprise Products generates stable fee-based revenues from its extensive pipeline network across more than 50,000 miles, transporting natural gas, natural gas liquids (NGLs), crude oil petrochemicals and refined products.
The midstream infrastructure provider also has storage assets that can hold more than 260 million barrels of NGL, petrochemical, refined products and crude oil. These assets can also store 14 billion cubic feet of natural gas. Moreover, Enterprise Products has $5.5 billion of major capital projects under construction that are likely to provide incremental fee-based revenues.
MPLX LP: MPLX has ownership and operating interests in midstream energy infrastructure and logistics assets, thereby generating stable cashflows. With a strong focus on returning capital to unit holders, MPLX recently announced a repurchase authorization for an incremental $1 billion of units.
PBF Logistics: PBF Logistics is a growth-oriented master limited partnership having ownership and operating interests in crude oil and refined petroleum products terminals, pipelines and storage facilities. To strengthen its financials, PBF Logistics announced, along with second-quarter results, the reduction of its outstanding balance of the revolving credit facility by $70 million year to date.