Global markets crashed toward the end of 2018, taking most stocks with them. One of the hardest-hit areas was the oil market, where crude prices plunged 40% from their peak in early October. That sell-off in oil took most energy stocks down with it, even those of midstream companies with limited direct exposure to crude prices.
This year has been a different story as markets have come back sharply, including oil, which has rallied more than 20%. That rebound in the oil market boosted most energy stocks, though quite a few bargains remain, led by Kinder Morgan (KMI 3.27%), Crestwood Equity Partners (CEQP), and Energy Transfer (ET 1.42%).
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It's still quite a bargain
After slumping 15% in 2018, Kinder Morgan entered this year as one of the top value stocks in the market given that shares of the natural gas pipeline giant traded at less than eight times cash flow. It's no longer quite that cheap since shares have rallied 25% already this year. A little math, however, shows that Kinder Morgan remains a solid bargain.
Kinder Morgan's stock currently sells for right around $20. Meanwhile, the company anticipates that it will generate $2.20 per share of distributable cash flow this year, which is 7% higher than 2018's total, driven by the expected completion of several expansion projects. This forecast implies that Kinder Morgan's shares trade at around nine times cash flow, which is still cheap for a pipeline company, since most rivals trade closer to 11 times cash flow. That continued disconnect suggests Kinder Morgan could have significant remaining upside as it narrows the discount between its stock value and those of its peers. Add in the company's 4%-yielding dividend, which it expects to boost 25% this year and next, and Kinder Morgan could generate high-octane total returns in the coming years.
Check out the latest earnings call transcripts for Kinder Morgan, Crestwood Equity Partners, and Energy Transfer.
It's inexpensive given what's coming down the pipeline
Crestwood Equity Partners is coming off an excellent year in which it was the best-performing MLP of 2018 when it generated a 17% total return. That strong performance has continued in 2019 as Crestwood's unit price has already rallied another 17%. But even with those big gains over the past year, the MLP's value remains attractive given the growth it expects to deliver this year.
Crestwood Equity Partners anticipates that it can generate between $3.42 and $3.84 per unit of distributable cash flow in 2019, or $3.63 at the midpoint. That's about 16% higher than 2018's total, driven by the anticipated completion of several expansion projects. With units of Crestwood currently trading at around $34 each, it suggests that the company sells for about 9.5 times cash flow using the midpoint of its guidance range. Add in the company's 7%-yielding distribution and the expectation that it can grow cash flow per share by another 15% in 2020, and Crestwood appears well positioned to produce significant total returns from here.
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A bottom-of-the-barrel valuation
Last year was the best of times and the worst of times for Energy Transfer. On the one hand, the pipeline giant delivered record-setting financial results, fueled in large part by the expansion projects it completed in the past year. However, despite its strong operational and financial performance, units of the MLP tumbled 23.5% in 2018, due mainly to the late turbulence in the oil market.
This year has been a different story as units of the MLP have bounced back by 14% and currently sell for about $15. That's still a cheap price considering that the company generated $2.06 per unit in cash flow last year, implying that it trades at a ridiculously low 7.3 times 2018 cash flow. Units are even less expensive when factoring in this year's anticipated double-digit growth rate as additional expansion projects come online. Add in Energy Transfer's 8%-yielding distribution, and this energy company could deliver enormous total returns in the coming years as it continues to grow earnings.
Value-conscious investors have plenty of appetizing options
While global markets have rebounded sharply this year, some stocks still trade at attractive values. This trio of pipeline companies appears particularly compelling since they not only sell for cheap prices but also offer healthy growth prospects and high-yielding dividends. Those factors have them well positioned to fuel market-crushing total returns in the coming years, making them all excellent stocks to consider buying right now.
