Cheating? - Utilities - OKE
Sometimes you just have to cheat. Everyone, and their brother, seems to have realized that utilities are a “back door” data center play. Even with slightly higher interest rates, nearly all the utilities trade near their highs. In order to find an idea with enough upside in the Utilities sector, I had to include the natural gas pipelines. Pipelines are like traditional utilities because 90%+ of their revenues are regulated, by the FERC not the states.
By a small margin I am going to chose ONEOK - OKE - $87 - 4.9%, over Kinder Morgan. OKE has done an underestimated job of building out an infrastructure in the obscure business of natural gas liquids NGL’s. “Wet” natural gas is often produced alongside oil. Some of this gas is flared, but some is captured and used to make things like ethane (for ethylene in plastics) and propane (for heating). OKE gets a toll for moving these products around. OKE spun off its gas utility in 2014 (One Gas), and started building this pipeline network. With a 5% yield, and significant upside, OKE is much more exciting than any of the traditional utilities. My friends at First Eagle own 2% of OKE.
You can make an argument to own no utility stocks, but I prefer to have a few examples of “risk-off” stocks in the portfolio.
Other Utilities considered:
Kinder Morgan - KMI - $32 - 3.7% - still a great long-term story (deregulation), OKE is just a little better, and more misunderstood by investors
American Water Works - $133 - 2.6% - one of best stories (50,000 water utilities to acquire), but not quite cheap enough yet, facing some tough state regulators
One Gas - OGS - $76 - 3.5% - boring, but now my favorite natural gas distribution utility
Evergy - EVRG - $86 - 3.2% - still my favorite electric utility, but far too expensive
Northwest Natural - NWN - $48 - 4.0% - my favorite small cap utility, but to close to its high
Antero Midstream -- AM - $22 - 4.0% - this is the OKE of Appalachia, but has gotten too expensive
Energy Transfer LP - ET - $19 - 7.0% - you get paid extra to deal with the annoying LP tax issues, pass
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Just 3 sectors healthcare, consumer staples, and other, remain.