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Everyone likes to think that stock prices move up and down based on value, growth outlook, etc. The truth is often that stock prices reflect market psychology more than fundamentals in the short term. In the longer term, the fundamentals almost always win out. The world economic growth estimates have been cut back by a number of entities recently. The HSBC preliminary Chinese PMI for Sept. of 49.4 showed contraction. With this apparent slowing, commodities are getting hit.

Even oil has retreated. WTI is at approximately $81 at the time of this writing. Oil’s retreat is hurting the outlook of all the companies involved in the oil space. Some likely deserve to be hurt a because their profits are directly dependent on the price of oil. Others have been pushed down due to market psychology more than due to drastically falling earnings and revenues prospects.

Some such as the oil pipeline companies will most likely remain relatively unaffected by an economic slowdown unless the price of oil falls much further. Oil companies still need to transport their oil. In fact there is greatly increasing demand for oil and gas transport due to the plethora of new prolific oil and gas fields such as the Bakken and the Eagle Ford. Plus the E&P companies know that the price of oil will go back up. They will not try to talk themselves out of pipeline contracts in the short term, when the demand is already going up faster than the supply. The world supply and demand outlook for oil is extremely bullish for many years into the future. The most recent EIA short term forecast for oil prices is below.



In addition the LNG business is developing quickly. It is supposed to put upward price pressure on natural gas prices as soon as 2012. It is supposed to grow considerably by 2015. It is not hard to see that India and China will want to import considerable natural gas via LNG ships from the increasingly natural gas rich U.S. These two highly populated countries can easily soak up any excess U.S. production. There is also the possibility that the U.S. Congress will enact a law to stimulate the use of natural gas in the U.S. It does burn cleaner than any other fossil fuels. Plus an increase in its use would help to trim the oil trade deficit.

In an economic slowdown, it will be the oil pipelines for which the demand is most inelastic. A few of the companies that provide this service are: Plains All American Pipeline (NYSE:PAA), TransCanada Corp. (NYSE:TRP), Kinder Morgan Energy Partners (NYSE:KMP), MarkWest Energy Partners (NYSE:MWE), and Enbridge Energy Partners (NYSE:EEP). The table below contains some of the fundamental financial data about these companies. The data are from TDameritrade and Yahoo Finance.

Stock

PAA

TRP

KMP

MWE

EEP

Price

$58.49

$40.15

$68.58

$47.14

$27.04

1 yr Analysts’ Target price

$68.71

$44.55

$75.79

$51.88

$33.32

Predicted % Gain

17%

11%

10%

10%

23%

PE

19.41

19.63

119.06

N/A

N/A

FPE

15.31

16.39

28.69

26.04

17.22

Avg. Analysts’ Opinion

2.2

1.8

2.7

1.9

2.1

Miss Or Beat Amount For Last Quarter

+$0.25

-$0.01

-$0.10

+$0.04

-$0.07

FY2012 EPS Estimate

$3.83

$2.45

$2.38

$2.06

$1.57

FY2012 EPS Estimate 90 days ago

$3.72

$2.41

$2.38

$1.92

$1.55

EPS % Growth Estimate for 2011

26.70%

12.80%

26.50%

143.90%

-6.80%

EPS % Growth Estimate for 2012

-0.30%

10.90%

28.00%

28.00%

15.40%

5 yr. EPS Growth Estimate per annum

3.87%

7.40%

11.30%

9.90%

2.57%

Market Cap

$8.74B

$28.23B

$22.61B

$3.73B

$6.91B

Enterprise Value

$14.57B

$48.07B

$35.08B

$5.33B

$12.72B

Beta

0.41

0.81

0.32

1.08

0.74

Total Cash per share (mrq)

$0.15

$2.40

$1.09

$1.20

$0.62

Price/Book

1.79

1.83

3.17

3.30

2.34

Price/Cash Flow

12.63

9.80

20.40

29.24

53.5

Short Interest as a % of Float

0.79%

0.52%

2.41%

1.34%

0.79%

Total Debt/Total Capital (mrq)

49.32%

52.90%

59.73%

50.00%

57.84%

Quick Ratio (mrq)

0.80

0.51

0.57

0.85

0.83

Interest Coverage (mrq)

5.14

3.39

5.85

4.20

3.19

Return on Equity (ttm)

9.46%

9.01%

2.54%

-7.54%

-7.59%

EPS Growth (mrq)

74.46%

23.74%

-121.75%

23.28%

0.38%

EPS Growth (ttm)

13.86%

8.12%

-60.98%

-250.15%

-168.38%

Revenue Growth (mrq)

44.66%

11.44%

2.95%

23.65%

35.74%

Revenue Growth (ttm)

30.25%

8.33%

4.38%

13.18%

30.71%

Annual Dividend Rate

$3.93 (6.50%)

$1.77 (4.40%)

$4.60 (6.40%)

$2.80 (5.80%)

$2.13 (7.30%)

Gross Profit Margin (ttm)

3.56%

62.86%

39.07%

40.16%

12.99%

Operating Profit Margin (ttm)

3.14%

32.85%

19.66%

4.44%

2.15%

Net Profit Margin (ttm)

2.15%

18.62%

16.35%

-3.88%

-1.33%


These stocks all look interesting. PAA has both growth and earnings. TRP has a new pipeline in the process of being built from Canada to the Gulf Coast. This will be able to carry oil sands oil from Alberta. Plus it will service the Bakken to some degree. This should provide good earnings growth for TRP in the near future. MWE has recently completed a new pipeline with Sunoco to service the Marcellus Shale field (and deliver natural gas to Canada). MWE has several other significant projects in process. All look like they will bring profits to the company in the near future. KMP has a new pipeline in conjunction with Valero to bring refined products to its transportation hub. KMP recently increased its dividend by $0.30 per share ($1.20 more annualized). EEP is partnering with Anadarko Petroleum Corp. (NYSE:APC) to build a new NGL’s pipeline in Texas. This will be kept very busy by all of the new shale oil/NGL’s/natural gas fields in Texas, especially the Granite Wash field.

In sum, all of these companies have something going for them. They all are growing. They all provide good dividends and stability. These can be good stocks for troubled times. All of these stocks have low Betas. I personally tend to be less worried when I see a reasonable Net Profit Margin figure for a stock. However, MWE may have a negative Net Profit Margin, but it has a strong 40.16% Gross Profit Margin. I am inclined to think the Net Profit Margin will eventually increase.

Let’s look at the two year charts of these to get an ideal of the price performance over time and any technical trading hints the charts may give.

The two year chart of PAA is below:



The two year chart of TRP is below:



The two year chart of KMP is below:



The two year chart of MWE is below:



The two year chart of EEP is below:



All of these charts look fairly strong. The charts of TRP and MWE seem to be the steadiest growers. Perhaps not coincidentally both of these companies have significant growth projects going. TRP's new pipeline to service the oil sands of Alberta and the oil of the Bakken has me the most interested as a long term play, although its dividend is the smallest. A pipeline that may eventually carry as much as 900,000 bopd from Canada and the Bakken to the Gulf Coast is very appealing. This would almost certainly allow some refineries to use Bakken oil instead of Brent.

Shorter term, the strength of the MWE chart is undeniable. MWE has an almost 6% dividend. Plus it has great growth prospects. If history is any indication, it has outgrown the other stocks on a percentage basis several fold in the last two years. That's impressive. PAA just looks solid.

Source: Oil Pipelines Will Be Needed Regardless Of Economy