Please ensure Javascript is enabled for purposes of website accessibility

Why the Williams Companies Stock Rose 37% in April

By Reuben Gregg Brewer – May 7, 2020 at 10:34AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After a steep drop in March, Williams saw a big rebound in April. The bigger question might be why there was a drop in the first place.

What happened

Shares of midstream energy-focused The Williams Companies (WMB -6.45%) rose 37% in April according to data from S&P Global Market Intelligence. That was a dramatic reversal of fortunes from March, when the stock was down 25%. The March swoon, however, included an approximate halving of the company's value before things started to turn around. While these two months reflect the broader risk-off/risk-on moods of Wall Street, the price moves at Williams have been compounded by a severe dislocation in the energy sector because of COVID-19.

So what

The energy industry has seen a massive supply/demand imbalance as social distancing efforts and business closures around the world have materially reduced demand. That's directly related to the global effort to slow the spread of COVID-19. Unfortunately, there were already oversupply concerns in the industry, so the demand drop pushed energy prices sharply lower and, with the broadly negative investor sentiment in March, led to steep price declines throughout the energy industry. Williams got caught up in that drop.

A man turning valves on an energy pipeline

Image source: Getty Images.

Its decline was so bad that the company adopted a so-called poison pill, giving current shareholders the right to buy massive amounts of stock if another company attempts an unsolicited takeover. At the end of March, the company even went so far as to outline for investors why its business is largely insulated from the upheaval in the energy markets. The key talking point was that Williams is "purposefully built to be predictable and durable." The presentation highlighted that demand drives much of its business and that demand has been fairly steady. When the company reported first-quarter earnings in early May that included year-over-year improvements in adjusted EBITDA, distributable cash flow, and distribution coverage, it clearly proved out the thesis it had presented in late March. Williams, as it had told investors it would, was weathering the current storm just fine.   

Now what

There are no sure things in investing, and the market turbulence of late, especially in the energy sector, has been difficult to stomach. However, the Williams Companies has been open and clear that it is doing OK amid the turmoil. If you are looking at the energy sector for an opportunistic portfolio addition, Williams should probably be on your short list. It's not perfect, and there are other major energy companies that may present more value once supply and demand get back in balance, but so far it has lived up to the "predictable and durable" standard that can help investors sleep well at night when markets are uneasy. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Williams Companies, Inc. Stock Quote
The Williams Companies, Inc.
$29.15 (-6.45%) $-2.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.