While it is common knowledge that energy from crude oil and natural gas is not sustainable for humans, I still cannot help thinking that it's time to be greedy when others are fearful, especially when super investors like David Tepper (Trades, Portfolio), Leon Cooperman (Trades, Portfolio) and T Boone Pickens (Trades, Portfolio) own significant positions in Energy Transfer LP (ET, Financial).
Add to that big-ticket, open market buys from CEO Kelcy Warren, along with two directors, and the stock is too cheap to ignore. In fact, Morningstar's fair value estimate was reaffirmed in November at $22, with the consider buying number $2 higher than the current market price.
Overview
Energy Transfer owns and operates a large group of crude oil, natural gas and liquid natural gas assets across Texas and the Midwest. Investors may remember the 2017 merger of Sunoco and Energy Transfer's PennTex unit, which gave the company 71,000 miles of pipelines and a large platform of distribution. Its fate is tied to dirty energy, but it appears modern society is committed to riding this wagon to the very end of the line.
Energy Transfer is a blue-chip company generating $51 billion in revenue and $1.3 billion in net income over the last 12 months alone. It has a market capitalization just shy of $34 billion, but since it's organized as a limited partnership, all the assets are essentially used to generate cash for owners. And boy, does it. With the current price under $13 a share, the dividend yield is north of 10%.
The short-term is even brighter as Energy Transfer is currently developing a gas liquefaction facility in Lake Charles, Louisiana. The hometown of Grant Cardone is now in the middle of a natural gas explosion, and Energy Transfer is expected to make billions from it.
Going forward
More importantly, Energy Transfer has eliminated the challenges of its corporate structure with the $27 billion merger of Energy Transfer Partners and its sponsor, Energy Transfer Equity. Now the company is one limited partnership heading in the same direction and able to pursue growth without debt concerns. With the stock down 22% since the combination, the current price gives long-term investors an opportunity to collect a hefty dividend and wait for the growth to ramp up.
The biggest danger for shareholders is that the volatility in oil and gas will continue. The company has already navigated the second worst oil crash in over 50 years and two corrections in four years. If this becomes the norm, investors are in for a bumpy ride across the board, and even more so in Energy Transfer.
Regardless, the reward should be worth the risk as the company is expected to earn over $3 per share over the next two years. Thats roughly 23% of its current share price. As long as the world depends on this form of energy, Energy Transfer will continue to pound out cash, both for banks holding its debt and for shareholders holding its equity.
Disclosure: I am not long or short ET.
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