The energy sector has always driven market movement and investors are keen on tapping stocks from this space. Per our latest Earnings Trends, the sector witnessed impressive year-over-year dollar growth in the first quarter. But there are a few industries in the sector and proper investment calls for intense research.
This article shows why and how the Oil/Gas Production Pipeline MLP industry a lucrative investment proposition for now.
Attractions in Oil/Gas Pipeline MLP
Top Ranked in Energy Sector
Oil/Gas Production Pipeline MLP is top ranked among the industries in the Oil & Energy sector. It is ranked #76 and falls within the top 30% of industries.
Investors should know that that the top 50% of the Zacks Ranked industries is likely to outperform the bottom 50% by a factor of more than two to one. For more information please refer to our Zacks Industry Rank.
Reaps More Yield than S&P 500
Dividend yield is among the few important parameters that investors usually consider before investing in a particular sector.
The current dividend for the Oil/Gas Production Pipeline MLP industry is 6.7%, which is way higher than the 1.4% yield for the S&P 500 Index.
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Improving Net Margin
Our proprietary model shows that the Oil/Gas Production Pipeline MLP has been witnessing net margin growth since first-quarter 2014. The industry’s net margin during the January to March quarter of 2017 came at 6.9%, far better than the 3.7% margin for first-quarter 2014.
This parameter shows that even three-year long commodity price weaknesses failed to hurt the sector’s profit reflecting its strong fundamentals.
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Favorable Business Landscape
On Nov 30, 2016, OPEC signed a landmark deal to curb crude production by 1.2 million barrels per day. Following the cartel in early December, non-OPEC players, headed by Russia, decided to take the same path and lowered oil output by 558,000 barrels per day. So they collectively decided to curb crude production by 1.8 million barrels each day.
On May 25, in the Vienna meeting, producers from both the sides voted to extend the slash in oil production by the same mark of 1.8 million barrels per day for the coming nine months.
We believe that U.S. shale players are likely to take the opportunity of production cut and may continue producing more oil at the expense of OPEC. In fact, the recent weekly rig count data provided by oil field services firm Baker Hughes Inc. BHI showed the 19th consecutive increase in the U.S. weekly rig count.
The factor that is driving the shale firms to pump more crude is that they are now in a position to sell the commodity, recovered significantly from Feb 2016 historical lows, at much higher prices. With more production, there will be greater needs for new oil pipeline and storage infrastructures and will be beneficial for stocks belonging to the Oil/Gas Production Pipeline MLP industry.
3 Buy Rated Stocks from the Industry
With the help of our proprietary Stock Screener we pinpoint three prospective stocks carrying either Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Houston, TX-based Enbridge Energy Partners LP EEP, a master limited partnership (MLP), is engaged in the gathering, processing and transmission of natural gas and crude oil. The partnership currently sports a Zacks Rank #1 and has VGM Score of “B.”
VGM Score, where V stands for Value, G for Growth and M for Momentum, is a comprehensive tool that allows investors to filter the standard scoring system and pick winning stocks. Also, Enbridge Energy beat the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 38.22%.
Delek Logistics Partners LP DKL – headquartered in Brentwood, TN – has midstream assets utilized for storage and transportation of crude in the U.S.
The partnership carries a Zacks Rank #2 and VGM Score of “A.” Moreover, for 2017, we are expecting 18.8% year-over-year earnings growth for Delek Logistics.
Headquartered in Houston, TX Enbridge Energy Management LLC EEQ primarily operates oil and gas transportation and storage properties through limited partner interest in Enbridge Energy Partners.
Presently, the stock carries a Zacks Rank #2.
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