Energy For Your Portfolio
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Natural gas prices have dipped significantly and so have the prices of coal, primarily due to the macroeconomic concerns about Europe. These concerns have forced investors to reduce and unload almost all of their holdings directly or indirectly related to Europe. The world is not ending; trust me it’s not, and contrarian investors have the opportunity to make money in this market by carefully investing in companies that have good growth potential. Even the most diversified businesses in Europe have been beaten down significantly which offers long term investors the chance to pick up stocks at rock bottom prices.
Energy Transfer Partners (NYSE: ETP) is one such beaten down company that deals with the gathering, production, processing and marketing of Natural gas. The company also has a 70% stake in Lone Star NGL LLC which operates and owns Natural Gas Liquids, and alongside is also involved in the storage, processing, and transportation providing services in Texas, Louisiana, and Mississippi.
The company in a bid to diversify its operations acquired Sunoco (NYSE: SUN) for $5.3 billion. Sunoco in itself is a widely spread company that acquires, owns and operates pipelines, providing crude and refined oil, to different parts of the US. The company’s reach spreads to 17 states across the country, and the geographically spread company has four operating divisions; that are refined, and crude oil pipelines, along with terminal facilities, and crude oil acquisition and marketing division. Sunoco has over 7900 miles of pipelines and around 4900 fuelling stations, all of which now belong to ETP. The company also has a 34% stake in Sunoco Logistics, which now belongs to Energy Transfer Partners. This shoots the theory of ETP being a core Natural Gas based business.
Sunoco Logistics (NYSE: SXL) has 15.4% as returns on investments, with a market capitalization just shy of $5.1 billion. Analysts expect the EPS growth to be around 50.4% which makes the ETP’s portfolio look all the more attractive. Some more reasons to buy Energy Transfer Partners:
1) P/E of 9.4,
2) PEG of 0.51 making the stock undervalued,
3) EPS growth expected next year by analysts stands at 44.53%,
4) A healthy Net Profit Margin of 25.38%,
5) A massive dividend yield of 8.31%.
The company in its most recent results reported that the net income for the first half of the year shot up to $1.25 billion, up from $403.9 million from the year ago period, almost tripling in value. The EBITDA also almost doubled in value when the figure surged from $845 million in the first half of 2011, to $1.736 billion in the current two quarters. The distributable cash flow increased from $223 million to $275 million. Overall the results turned out to be great.
Also the company sold off its propane business which was dragging the profitability of the company down. The revenue generated from the sale is expected to be utilized to reduce the company’s debt along with to consolidate and expand the existing pipeline business.
With the spurt in acquisitions and the sale of an existing propane business, the aggressive intent of the management gets highlighted. The financials look promising and so do the fundamentals. Though the stock has given negative returns this year, the financial benefits of owning Sunoco Inc. are yet to be seen on the books of Energy Transfers, and all the mentioned reasons make the stock ripe for value picking.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.