Three Midstream Oil and Gas Stocks to Buy in a Turbulent Market

Three midstream oil and gas stocks to buy in a turbulent market give investors an opportunity to acquire shares in the companies at slightly discounted prices.

All three midstream oil and gas stocks to buy in the wake of an Aug. 5 market dip also offer dividends to reward investors for their patience while demand for oil and natural gas is waning due to a slowing economy in China, the world’s most populous nation. These three midstream oil and natural stocks also have a track record of resilience in various economic and market conditions.

The U.S. Midstream Oil and Gas Market has demonstrated a strong growth trajectory, valued at $9.2 billion in 2023, and is forecast to continue its gains through 2029 with a 4.2% projected compound annual growth rate, according to a recent forecast. Technological innovations and digitalization are transforming midstream oil and natural gas operations, enhancing efficiency and establishing new development fronts in the face of economic factors and investment climates.

Midstream oil and natural gas activities refer to the transportation, storage and processing that takes place between the upstream and downstream stages of oil and natural production. In addition, midstream companies connect energy supply and demand by providing services that move resources from wells to homes and businesses. These services include collecting oil and natural gas from wells, treating the product by removing water and waste, as well as compressing it, transporting resources via pipelines, trucks, railways, ships or tankers, along with keeping the resources in storage facilities.

Another role of midstream providers is to sell the oil and natural gas to markets downstream that handle refining and the conversion of oil and natural gas into thousands of finished products. In contrast, upstream activities include exploration, drilling and extraction.

Three Midstream Oil and Gas Stocks to Buy: The Williams Companies (WMB)

Williams Companies Inc. (NYSE: WMB), a Tulsa, Oklahoma-based natural gas processing and transportation company that also has petroleum and electricity generation assets, received a buy recommendation and a $45 price target from Citigroup, based on the investment firm’s 20-year net present value (NPV), implying  an 11.1x enterprise value (EV) / EBITDA multiple on 2025 estimates. The investment firm’s NPV method assumes a 10% discount rate.

Plus, Williams Companies reported second-quarter 2024 EBITDA of $1,667 million, above Citigroup’s estimate of $1,617 million and the Street’s mean consensus estimate of $1,641 million. Higher-than-expected Transmission and Upstream results helped to produce the outperformance. WMB also optimized its portfolio by buying and selling assets of similar amounts with the net result of lower commodity volatility, Citigroup wrote.

WMB management maintained its expectation to achieve EBITDA in the top half of the ’24 range, a metric the company should be able to achieve, Citigroup wrote. Recent court actions are not expected to impact service, Citigroup added.

Potential risks for investors to consider that could prevent WMB from achieving the $45 target price include dramatically lower natural gas prices and extreme cuts in rig counts, Citigroup cautioned. However, the investment firm issued a recent research report indicating that the company’s upbeat outlook for ’24 and ’25 remains intact.

The stock is a featured recommended Forecasts & Strategies investment newsletter. Since its recommendation on Jan. 17, 2023, the stock has soared 39.65%, including dividend payouts.

Ben Franklin scion Mark Skousen, who heads Five Star Trader and Forecasts & Strategies, talks to Paul Dykewicz.

The Williams Companies has a track record of beating earnings three quarters in a row and is expanding. It acquired six storage facilities recently in Louisiana and Mississippi to meet increased demand for liquid natural gas (LNG) exports and power generation.

Chart courtesy of www.stockcharts.com

Three Midstream Oil and Gas Stocks to Buy: Oneok Inc. (OKE)

Tulsa, Oklahoma-based midstream gas transmission provider Oneok Inc. (NYSE: OKE) recently reported quarterly results that Citigroup wrote should should provide increased confidence in the stock’s prospects for hitting the upper half of its projected range for 2024 earnings before interest, taxes, depreciation and amortization (EBITDA). That holds true even when taking Oneok’s gain on asset sales into consideration, Citigroup wrote in a recent research note.

The investment bank rates Oneok as a “buy” and gave it an $85 price target. Citigroup wrote that Oneok’s Q24 leverage of 3.36x came in below the targeted 3.5x, which could position OKE to begin using its share repurchase program in 3Q24.

Risks to Citigroup’s target price include reduced producer activity in the Bakken, weaker ethane recovery economics leading to reduced recovery across OKE’s system, and MB-5 project delays resulting in increased third-party fracking fees vs. the investment bank’s assumptions.

Oneok reported adjusted EBITDA of $1,624 million in its latest quarter, beating the $1,515 million forecast by Citigroup’s estimate and the Street’s mean estimates. Segment EBITDA beat estimates across the board, the investment firm wrote.

EBITDA beat on the quarter and implies a roughly 5% second half 2024 growth to hit the reiterated guidance midpoint — an achievable hurdle, Citigroup opined, given 1Q weather impacts, volume tailwinds and the company’s Easton NGL acquisition.

“Synergies are starting to become more apparent,” Citigroup wrote. “For example, Crude & Refined Products volumes were slightly below our estimates, but optimization drove an EBITDA beat. We view this dynamic as evidence of OKE’s ability to extract synergies from [Magellan Midstream Partners] MMP assets by selling forward and utilizing the collective asset base to lock in wider margins.”

Chart courtesy of www.stockcharts.com

Three Midstream Oil and Gas Stocks to Buy: Enterprise Products Partners (EPD)

I have owned Enterprise Products Partners (NYSE: EPD) for a number of years due to its consistent dividend payments and share price appreciation. I first learned about the stock from Skousen through his Forecasts & Strategies investment newsletter. Skousen also leads Five Star Trader, among a variety of investment advisory services.

Dividend payouts are a sweetener for investors to own shares in EPD. With a current dividend yield of 7.3%, EPD can help keep long-term investors like me calm even when the market drops as it did Monday, Aug. 5.

The Dow Jones Industrial Average fell that day more than 1,000 points, or 2.6%, while the S&P plunged 3% and the technology-heavy NASDAQ slid 3.4%. Nonetheless, the markets covered some of that ground on Tuesday, Aug. 5, and in the following days.

Goldman Sachs analysts opined that investors have amassed “significant cash piles” that can be used to purchase shares of stock that become tempting opportunities for bargain hunters. EPD could be one of those stocks for investors who do not mind that its status as a master limited partnership that causes shareholders to cope with a K-1 document at tax time. A K-1 requires additional time and effort for me and others to navigate each tax season.

Citigroup placed a $33 target price and a buy rating on EPD, based on a net present value (NPV) that implies enterprise value (EV)/earnings before interest, taxes, depreciation and amortization (EBITDA) multiple of 9.75x, per the investment firm’s 2025 estimates.

Of course, risks exist to reach that price target, Citigroup wrote. They include weaker-than-anticipated Permian production growth, global recession risk amid a petrochemical downcycle and ongoing regulatory risk, which may hinder future growth projects.

Chart courtesy of www.stockcharts.com

Another Idea to Consider

A fan of selectively investing in top midstream oil and natural gas stocks is Bryan Perry, who leads the Cash Machine investment newsletter whose holdings average an annual dividend yield above 10%. He also recently recommended Kimbell Royalty Partners, LP (NYSE: KRP) as a high-yield pure play in the oil sector. The seasoned Wall Street professional wrote that he chose the oil royalty company to become a “key addition” to Cash Machine‘s blended portfolio of diverse assets.

With geopolitical risks that include wars in Ukraine, Gaza and elsewhere, along with rising defense spending in countries such as Russia, China and the United States, a spike in oil prices could occur at any time, Perry cautioned. Those who scoop up a double-digit-percentage yield from a “flourishing” royalty enterprise will have an investment that is likely to outperform going forward, Perry wrote to his subscribers.

Kimbell Royalty has grown from a single investment in the Permian Basin to one of the largest owners of minerals and royalties nationwide. That growth is the centerpiece of the company’s success story, he added.

Bryan Perry leads Cash Machine and Breakout Options Alert.

Three Midstream Oil and Gas Stocks to Buy Amid Rising Geopolitical Risk

Ukraine’s incursion into Russia during the past week shows that hot spots in the world can become even riskier. As Russia pushed its invasion of Ukraine forward with waves of soldiers dying in the process, Ukraine opted to take action to stem the onslaught of missiles coming their way from Russia by taking control of land used for firing the deadly weapons.

The three oil and natural gas stocks to purchase offer a gusher of opportunity to tap richly flowing cash flows. They also provide robust dividend payouts that may further sweeten the profits from share price appreciation generated by these investments.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Special Sale for Graduation Season! Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for reduced pricing on multiple-book purchases.