Shares of midstream energy-focused The Williams Companies (NYSE:WMB) 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.
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.
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.
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.