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The past few weeks have come close to wiping out all the gains of the past year. Opening your brokerage page these days probably comes with some teeth-gnashing as you tally up the recent losses. Conversely, if you have a wish list and some cash to deploy into new investments, today looks like a much more attractive time to buy than a few months ago.
There are lots of stocks at or near the bottom of their 52-week trading range, but let's focus on three that likely have investors' attention: oil and gas pipeline specialist Magellan Midstream Partners (NYSE: MMP), lithium miner Sociedad Química y Minera de Chile (NYSE: SQM), and investment bank Goldman Sachs (NYSE: GS). Here's why investors have been flocking away from these stocks and whether you should consider adding them to your portfolio now.
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Business has been good, but the stock hasn't
Magellan Midstream Partners operates in the highest-demand part of the North American oil and gas industry today: pipelines and infrastructure. Shale drilling has unlocked unfathomable amounts of crude oil and natural gas, and has filled pipelines to capacity. The issue has become so acute that domestic crude has been trading at significant discounts to international benchmark prices.
The investment opportunities in the pipeline business are some of the best they have been in decades, but Wall Street hasn't treated Magellan Midstream Partners' stock as such. Even though the company has raised guidance and plans to invest in a new suite of projects to move oil across America and overseas, the stock trades close to its 52-week low and sports a distribution yield of 6.2%, its highest level since the beginning of this decade.
One reason that investors could be discouraged with this stock is that management intends to grow its payout by 5% to 8% annually for the next couple of years. That is well below the 12% annual rate it has posted since going public in 2001. It is keeping its payout growth low now because management wants to plow that excess cash into these new growth projects, which should help to support better payout rates down the road. This kind of long-term thinking is what you want to see in a pipeline company, and this recent slide makes Magellan's stock look compelling.
Cheaper, but not necessarily cheap
Lithium stocks were a Wall Street darling up until this most recent price crash. Analysts and investors poring over electric vehicles and battery storage projections concluded that we needed a lot more lithium and bid up lithium stocks to incredible highs at the end of 2017. Then, as has been the case with commodities for decades, companies started coming out of the woodwork to build lithium mines or grow production at existing ones. In less than 12 months, Wall Street went from fearing a supply shortage to seeing a glut of production hitting the market. As a result, shares of Sociedad Química y Minera de Chile (SQM for short) are down about 28% year to date.