Good investors know the key to long-term success is to carefully examine a company before committing your hard-earned money. That means considering the bear as well as bull arguments for a stock. In that spirit, let's look at two reasons -- one connected to the commodity cycle and the other not -- that Williams Companies(NYSE:WMB) share price might crash over the next few quarters. More importantly, here's why if you are a long term investor, you should use these potential risks as a buying opportunity. 

Continued weakness in commodity prices

WMB Chart
WMB data by YCharts

Williams' share price has tracked crude oil pretty closely, even though its pipelines transport natural gas and natural gas liquids, or NGLs. Thus, while it may initially seem as if investors are punishing Williams for no good reason, that isn't necessarily the case. That's because natural gas and NGL prices have correlated with oil reasonably well in the past few years.  

Williams Oil Pricengl Price Natural Gas Prices


In fact Williams Companies, which derives almost all its income from fees and distributions collected from its MLP, Williams Partners (NYSE:WPZ), has faced increasing margin pressure from a crash in NGL prices. For example, during the second-quarter, weak NGL prices -- now at 10 year lows -- caused Williams Partners' adjusted EBITDA from commodity margins to fall $56 million year over year. 

US Producer Price Index: Natural Gas Liquids and Residue Chart
US Producer Price Index: Natural Gas Liquids and Residue data by YCharts

Why are NGL prices down so much? The answer is twofold. First, production from certain NGL rich wells, especially in Texas's Eagle Ford shale and the prolific Permian basin, have been booming along with oil and gas. This is a trend that is expected to continue for years to come, as the following chart illustrates.

Permian Eagle Ford Ngl Production Forecast

Source: RBN Energy

When combined with large growth in NGL processing from natural gas and a lack of sufficient transportation infrastructure, a supply glut has formed causing NGL prices to collapse.

Luckily for investors, Williams Partners' fixed fee-based revenue growth more than makes up for weakness in NGL prices. In fact, thanks to the recent acquisition of Access Midstream Partners and new projects coming online, its fixed-fee revenue soared 72% in Q2. Thus, despite weak commodity prices, total adjusted EBITDA for Williams Partners and Williams Companies grew 41% and 32% year over year, respectively. 

With Williams' enormous $30 billion backlog of projects coming online within the next five years I expect profit, cash flow, and dividend growth to keep humming along even if crude, natural gas, and NGL prices don't recover anytime soon. 

Energy Transfer Equity merger might fail 

WMB Chart
WMB data by YCharts

The enormous jump Williams Companies' stock experienced on June 22 was due to the announcement that Energy Transfer Equity (NYSE:ETE) was offering to buy Williams in a $53 billion deal that valued Williams at $64 a share. 

Williams' management turned the deal down contending that the 32% premium Energy Transfer is offering greatly undervalues its shares, and it has since shopped itself around to 15 other potential buyers searching for a higher price. However, given the fact that Energy Transfer's bid values Williams at an EV/EBITDA ratio of 28 -- 36% above its own ratio of 20.6 and far above competitors such as Kinder Morgan's 18.5 -- I think it's unlikely Williams will find a more generous offer.

A collapse of merger talks would likely hit the share price hard in the short-term, but given Williams' great long-term prospects that's not the risk income investors should focus on. Rather, the real downside for Williams' investors is to miss out on the potential faster long-term dividend growth that this deal could provide. For example, analysts are currently predicting that Energy Transfer Equity's dividend growth over the next five years will be 24% CAGR. 

Now long-term analyst projections always need to be taken with a large grain of salt. However, given that Energy Transfer Equity just announced its 11th consecutive dividend increase -- up 39% over last year's quarter -- I tend to believe that such predictions may be appropriate. That's especially true considering a post Williams merger Energy Transfer would have a $60 billion growth project backlog to fuel strong dividend growth in the years ahead. 

Takeaway: Short-term risks are real, but they're also potential long-term buying opportunities in disguise
Despite the short-term risks represented by inherently volatile and cyclical commodity prices and a potential failure of merger talks with Energy Transfer, I still believe Williams Companies to be one of the best long-term stocks income investors can buy to profit from America's energy future.

Thus my advice for current and prospective Williams investors is to ignore the short-term noise generated by these factors and instead focus on the long-term potential of generous, growing, and well covered dividends to provide superior total returns for years to come. 

Adam Galas has no position in any stocks mentioned, however, he does lead The Grand Adventure dividend project, which recommends Williams Companies and Kinder Morgan. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.