El Paso: A Winner in the Making

| About: Kinder Morgan, (KMI)

Since September 2003, when Halliburton's former CEO Doug Foshee stepped in to role as President and CEO of El Paso Corporation (EP), the company has steered in a strong direction. I think this is a terrific pick.

A provider of natural gas and related energy products, El Paso is focused on two core businesses: Pipelines and exploration/production. With around 43,000 miles of pipeline in North America, it is the largest pipeline owner in the U.S., connecting production basins in the east and the west coasts, and transporting about a quarter of the natural gas consumed in the country each day.

With Foshee's direction, El Paso is making strong gains in cost cutting measures, selling assets and focusing on the pipeline and production business. It suffered in 2002, but then sold assets to pay down debt. Now, it's growing. It has recorded profits for the last three quarters. While it continues to sell off assets in a smart way, it is also making margin gains at the pipeline and E&P units.

The high price of oil and gas has been a boon for El Paso, and recent drilling efforts have been successful. Further, some of the production curtailed due to the 2005 hurricane season is now back online. In March, Moody's gave El Paso an investment grade rating for its pipeline subsidiaries, and the Federal Energy Regulatory Commission gave it a favorable environmental ruling on its Elba Island liquefied natural gas import terminal expansion near Savannah, pushing it closer to final approval.

While all oil and gas businesses are subject to high risk, and El Paso is still heavily in debt, I think its strong leadership, continued smart asset sell-offs, and signs of strong growth as it moves ahead all point to the thumbs up. I think this is a winner in the making.

Type of stock:
A provider of natural gas and related energy products, with the largest pipeline in the U.S., El Paso is making a strong rebound as a company.

Price target: Currently trading at $15.56, I'd pick this up now if you're willing to take a risk, and if it dips slightly – even to $13, I'd really be inclined. I think this can soar to the $25 level by year end.

EP 1-yr chart: