Is NuStar Energy the Pipeline to Profits?

With more than 5,400 stocks to choose from, the universe of investment possibilities is enormous. You could get tips over the company water cooler or from Internet discussion boards. A better way might be to look for stocks based on what you already know and own.

Motley Fool CAPS helps you focus your energies by providing you with a personalized Stock of the Day. Using its supercomputer, it looks at stocks currently in your active pick list, stocks picked by highly rated players with lists similar to yours, industries in which you currently have active picks, and areas in which you already have an interest.

By pairing up the opinions of some of the top investors in the CAPS community, CAPS provides you with a handful of companies on which to begin your own due diligence and research.

Buy what you know
No doubt based on my interest in the oil, gas, and consumable fuels sector, where I've rated companies like HollyFrontier and Kodiak Oil & Gas to outperform the broad indexes while conversely betting others like bankrupt Patriot Coal would, well, go bankrupt, the CAPS supercomputer thought I also might be interested in another energy play, this time NuStar Energy (NYSE: NS  ) , an operator of oil and gas pipelines. It was one of five Stocks of the Day it offered up for my consideration this week.

Considering I do think such picks-and-shovels stocks are indeed a worthy place to look for ideas, let's see what NuStar has going for it that might warrant an investment, even if the supercomputer hasn't yet picked it for you. Just remember, as smart as the CAPS algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions.

NuStar Energy snapshot

Industry Oil, Gas, and Consumable Fuels
Sector Energy
Market Cap $3.5 billion
Revenues, TTM $7.4 billion
Return on Investment (2.5%)
Dividend and Yield $4.38/8.99%
Recent Price $48.72
Estimated 5-Year EPS Growth 7%
CAPS Rating (out of 5) ***

Sources: Motley Fool CAPS, S&P Capital IQ.Rise of the robotsEarlier this year, President Obama killed the TransCanada (NYSE: TRP) Keystone XL pipeline that would have brought cheap Canadian tar-sands oil to the U.S. because of the route the pipeline would go through Nebraska. In response, our northern neighbor immediately began looking elsewhere to send its oil, particularly China, believing it couldn't sacrifice its own financial security to political whim.

Although Canada still wants to diversify its export markets -- 99% of the oil it produces comes to the U.S. -- TransCanada just resubmitted the Keystone application to Nebraska for reconsideration, changing the route the pipeline will take to address concerns of environmentalists. The oil giant hopes to gain approval early next year.

It's not quite the Jetsons
The scrape shows the importance oil and gas pipelines have to both the industry and the economy. According to the market researchers at IHS Global Insight, investors can expect almost $2 trillion worth of investments to be made in pipelines, transport, and storage facilities by 2035, but with some of the heaviest action coming within the next few years.

It's one of the reasons I hold pipeline operators in such high esteem. Toll-takers like NuStar, Energy Transfer Partners (NYSE: ETP  ) , or Buckeye Partners (NYSE: BPL  ) don't care what price oil is -- it still has to go through. While a steep recession may reduce demand for refined products leading to decreased throughput, the anemic recovery we're supposedly in the midst of isn't going to affect their results overly much.

Apparently, many operators see little chance of such an event, as Energy Transfer Partners is buying oil refiner Sunoco (NYSE: SUN  ) for $5.3 billion as a means for getting at its East Coast pipeline business. Sunoco still has a controlling interest in its pipeline operator Sunoco Logistics Partners.

With the current state of infrastructure unable to meet capacity needs, look for the toll collectors to continue to prosper in the years to come.

Replicating growth
Priced at 17 times earnings and less than half its sales, NuStar doesn't appear particularly expensive, but a flagging asphalt and marketing division weighed on results. It's agreed to sell its interest in the asphalt business, which should focus its efforts more narrowly. Motley Fool CAPS member bartleyrc isn't worried by the recent earnings miss, noting the " large expenditures in capital equipment to ramp up oil extraction" and adding that "the sheer vastness of its oil shale source" makes it "intriguing."

I agree the changes it's making are worthwhile, so I'm also rating it to outperform the broad indexes on CAPS, but let me know in the comments section below if you agree NuStar Energy has a pipeline to future growth.

No buzzkill here
Not every investor needs to invest in pipelines and storage facilities to profit in energy. There's one multibillion-dollar energy company that's poised to capture the lion's share of opportunity in natural gas when it rebounds, but in the meantime investors can enjoy its stable dividend. You can gain immediate access to the free report "The One energy Stock You Must Own Before 2014" by downloading it free of charge.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. We Fools don't 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. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 12, 2012, at 4:59 PM, TFfly wrote:

    NuStar Energy is a great company with solid performing assets but alot of debt. The recent sale of shares should help reduce the debt and improve the companies financial situation. Why the stocks price has gone down. The new shares were priced way too low.

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