3 Midstream Stocks to Gain Despite Omicron-Induced Uncertainty
Uncertainty is again haunting energy businesses, with major oil producers witnessing a significant fall in share prices. Rapidly spreading new variants of coronavirus are spooking investors as there are possibilities of renewed lockdown measures that could dent fuel demand.
This doesn’t imply that investors should steer clear of energy stocks. It is in fact better to divert focus to midstream energy players since they have minimal oil and gas price and volume risks.
Oil Price Volatility
The pricing scenario of West Texas Intermediate (WTI) crude has been extremely volatile of late. The price of the commodity is currently trading below the $70-per-barrel mark, reflecting a significant decline from the high of more than $84 per barrel reached early November this year.
The rapid spread of Omicron is slowing down the revival in fuel demand since investors are concerned that there will be delays in air travel with people likely to prefer working from home. Uncertainty in the energy business, backed by rising coronavirus cases, is making oil price volatile again.
Better to Focus on Midstream Business
Volatility in oil prices has induced uncertainty in the upstream business. This is likely shifting the focus of investors toward midstreamcompanies since companies involved in oil and gas transportation and storage operations have lower exposure to coronavirus-induced volatility in commodity prices.
Midstream companies transport oil, natural gas and refined products from prolific basins to end markets. The pipeline networks and storage assets are usually contracted by shippers for a long period of time, thereby generating stable fee-based revenues.
3 Stocks in the Spotlight
Employing our proprietary Stock Screener, we have shortlisted three midstream stocks with strong potential to gain. Two of the stocks carry a Zacks Rank #2 (Buy), while one carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Oasis Midstream Partners LP OMP, with its diversified portfolio of midstream assets, provides services to its sponsor, Oasis Petroleum Inc., and third parties. Oasis Midstream Partners' services include gas & crude gathering, gas processing and natural gas liquid storage.
There has been a consistent track record of business development by Oasis Midstream Partners. Since its initial public offering (IPO) in 2017, Oasis Midstream Partners, with a Zacks Rank of 2, has been generating incremental earnings before interest, tax, depreciation and amortization.
Transportadora de Gas del Sur SA’s TGS midstream asset portfolio has the most extensive pipeline network of natural gas in Latin America. Transportadora de Gas del Sur generates stable fee-based revenues since its pipeline assets transport more than 60% of the gas consumed in Argentina.
Transportadora de Gas del Sur has witnessed upward earnings estimate revisions for 2021 in the past 60 days. The upward revisions are being backed by TGS’s stable business model and strong focus on creating differential value for shareholders. Also, Transportadora de Gas del Sur, with a Zacks Rank of 2, has lower debt exposure than the composite stocks belonging to the industry.
Enbridge Inc. ENB, a leading North American energy infrastructure player, generates stable fee-based revenues. For 2022, Enbridge is projecting EBITDA in the band of C$15 to C$15.6 billion and DCF per share in the range of C$5.2 to C$5.5. The metrics for next year thus suggest an improvement as compared to this year. By 2024, Enbridge expects average annual DCF per share growth of 5% to 7%.
Enbridge has a strong commitment toward returning capital to shareholders. It has raised its quarterly dividend by 3% to 86 Canadian cents per share. Thus, Enbridge has increased its 2022 dividend (C$3.44 annualized), marking a dividend increase for 27 straight years. The Zacks #3 Ranked firm also intends to establish a share buyback program through which it can repurchase C$1.5 billion of outstanding shares.
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Enbridge Inc (ENB) : Free Stock Analysis Report
Transportadora De Gas Sa Ord B (TGS) : Free Stock Analysis Report
Oasis Midstream Partners LP (OMP) : Free Stock Analysis Report
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