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Here's Why We Should Bet on Midstream Stocks to Beat Volatility
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Stubbornly high inflation is keeping the broader equity market under pressure. Thus, to rein in inflation, which is at the 40-year high mark, the Federal Reserve is likely to opt for continued large interest-rate increases, thereby raising 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, which led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate 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 DCP Midstream LP , The Williams Companies Inc (WMB - Free Report) 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 less exposure to both oil and gas price and volume risks.
DCP Midstream LP: DCP Midstream is a leading provider of midstream services, having a fully integrated and resilient business model. With 12 billion cubic feet of natural gas storage assets, the master limited partnership has 2.8 billion cubic feet of daily natural gas pipeline capacity. DCP Midstream, with Zacks Rank of 2, strongly focuses on strengthening its balance sheet with the foremost priority of reducing debt load.
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, #1 Ranked MPLX announced a repurchase authorization for an incremental $1 billion of units.
The Williams Companies Inc: The Williams Companies is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 30,000 miles, The Williams Companies connects premium basins in the United States to the key market. With a Zacks Rank of 2 at present, WMB’s assets can meet 30% of the nation’s consumption of natural gas, which is utilized for heating purposes and clean-energy generation.
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Here's Why We Should Bet on Midstream Stocks to Beat Volatility
Stubbornly high inflation is keeping the broader equity market under pressure. Thus, to rein in inflation, which is at the 40-year high mark, the Federal Reserve is likely to opt for continued large interest-rate increases, thereby raising 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, which led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate 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 DCP Midstream LP , The Williams Companies Inc (WMB - Free Report) 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 less 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. While one stock sports a Zacks Rank #1 (Strong Buy), two carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
3 Stocks in the Spotlight
DCP Midstream LP: DCP Midstream is a leading provider of midstream services, having a fully integrated and resilient business model. With 12 billion cubic feet of natural gas storage assets, the master limited partnership has 2.8 billion cubic feet of daily natural gas pipeline capacity. DCP Midstream, with Zacks Rank of 2, strongly focuses on strengthening its balance sheet with the foremost priority of reducing debt load.
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, #1 Ranked MPLX announced a repurchase authorization for an incremental $1 billion of units.
The Williams Companies Inc: The Williams Companies is well-poised to capitalize on the mounting demand for clean energy since it is engaged in transporting, storing, gathering and processing natural gas and natural gas liquids.
With its pipeline networks spread across more than 30,000 miles, The Williams Companies connects premium basins in the United States to the key market. With a Zacks Rank of 2 at present, WMB’s assets can meet 30% of the nation’s consumption of natural gas, which is utilized for heating purposes and clean-energy generation.