Broad inflationary pressures and rising coronavirus infections overseas are making the broader market extremely volatile. Many investors believe that uncertainty will prevail as inflation is not going away anytime soon. Being inherently volatile in nature, the global uncertain business scenario has further induced choppiness in overall energy operations, which is getting reflected in the oil price chart.
Companies belonging to the energy 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 DCP and The Williams Companies Inc WMB, while keeping an eye on MPLX LP MPLX.
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. One stock sports a Zacks Rank #1 (Strong Buy), one carries a Zacks Rank #2 (Buy) and one has a Zacks Rank #3 (Hold). 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 a Zacks Rank of 1, 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, the #2 Ranked MPLX announced that as of third-quarter 2022-end, it had roughly $1 billion available under its unit repurchase authorizations.
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 3 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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