Investing 101: Oil & Gas Pipelines With Encouraging Inventory Trends

Changes in the energy prices means suppliers are switching back and forth between oil and gas production, choosing to increase production on whichever has the greatest economic benefits.

A drop in oil prices, low natural gas prices, and unlimited speculation about which will rebound makes it difficult to anticipate what energy sources will be the most profitable in the mid and long term. And unfortunately for suppliers, switching production isn't as easy as turning on and off a tap -- they need the infrastructure to accommodate both.

Oil and gas pipelines
With this in mind we made a list of oil & gas pipeline stocks, and then screened for those stocks with encouraging sales trends and higher growth in revenue than inventory year over year, as well as inventory comprising a smaller portion of current assets over the same time period.

To understand why these trends are positive, think why the opposite trends would be negative. If a company sees higher growth in inventory than revenue, it may indicate that the company is having trouble selling its inventory.

In this case, it might imply that they are not switching their oil and gas inventory back and forth to take advantage of the price changes. If the market price of gas exceeds that of oil, then it would be beneficial to transition to gas transportation.

Business section: Investing ideas
Below are the final results from the screen, which have shown positive revenue growth vs. inventory growth.

Do you think these companies will continue to see strong sales and inventory trends? Do they reflect their keeping up with oil and gas prices?

List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)

1. El Paso (NYSE: EP  ) : Operates in the natural gas transmission, and exploration and production sectors of the energy industry primarily in the United States. Market cap at $22.87B, most recent closing price at $29.40. Revenue grew by 27.4% during the most recent quarter ($1,260M vs. $989M y/y). Inventory grew by 4.82% during the same time period ($174M vs. $166M y/y). Inventory, as a percentage of current assets, decreased from 11.93% to 10.77% during the most recent quarter (comparing 3 months ending 2012-03-31 to 3 months ending 2011-03-31).

2. Plains All American Pipeline (NYSE: PAA  ) : Engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products (LPG) in the United States and Canada. Market cap at $12.78B, most recent closing price at $78.10. Revenue grew by 19.81% during the most recent quarter ($9,218M vs. $7,694M y/y). Inventory grew by -22.15% during the same time period ($1,079M vs. $1,386M y/y). Inventory, as a percentage of current assets, decreased from 30.08% to 25.9% during the most recent quarter (comparing 3 months ending 2012-03-31 to 3 months ending 2011-03-31).

3. Magellan Midstream Partners (NYSE: MMP  ) : Distributes refined petroleum products. Market cap at $7.81B, most recent closing price at $68.0. Revenue grew by 11.42% during the most recent quarter ($493.48M vs. $442.9M y/y). Inventory grew by 6.95% during the same time period ($240.17M vs. $224.56M y/y). Inventory, as a percentage of current assets, decreased from 52.43% to 42.4% during the most recent quarter (comparing 3 months ending 2012-03-31 to 3 months ending 2011-03-31).

4. Buckeye Partners (NYSE: BPL  ) : Operates refined petroleum products pipeline systems in the United States. Market cap at $4.7B, most recent closing price at $47.68. Revenue grew by 0.55% during the most recent quarter ($1,259.44M vs. $1,252.54M y/y). Inventory grew by -25.88% during the same time period ($187.41M vs. $252.83M y/y). Inventory, as a percentage of current assets, decreased from 43.73% to 39.78% during the most recent quarter (comparing 3 months ending 2012-03-31 to 3 months ending 2011-03-31).

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Danny Guttridge does not own any of the shares mentioned above. Data sourced from Google Finance.

Motley Fool newsletter services have recommended buying shares of Magellan Midstream Partners. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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