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The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The price of crude oil plunged to a negative $36.98 per barrel on Apr 20, 2020. However, with the rapid development of vaccines, which 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. Currently, WTI oil price is trading at more than $65 per barrel.
The business model of most energy players, by its inherent nature, is exposed to extreme volatility in commodity prices. Hence, it would be wise for investors to focus on midstream stocks like Kinder Morgan, Inc. KMI, MPLX LP MPLX and The Williams Companies Inc WMB.
Midstream Energy Players to the Rescue
Although the fate of energy players is highly dependent on oil and gas prices, stocks in 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, which indicates considerably less exposure to oil and gas prices and volume risks.
We have employed our Stock Screener to zero in on three stocks belonging to the midstream energy space that are well poised to gain, and hence investors should keep an eye on these. All the stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
3 Stocks to Keep an Eye On
Kinder Morgan: With its operating interests in oil and gas pipeline networks spread across 83,000 miles, KMI is a leading energy infrastructure company in North America. It derives most of its earnings from take-or-pay contracts, generating stable fee-based revenues.
Kinder Morgan is poised to grow on the back of its business model, which is relatively resilient to volume and commodity price risks.
MPLX: The firm has ownership and operating interests in midstream energy infrastructure and logistics assets, thereby generating stable cashflow. With a strong focus on returning capital to unit holders, MPLX repurchased $491 million of common units last year. Under its unit repurchase authorization, the partnership has yet to buy back the remaining $846 million of its units.
The Williams Companies: It 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.