Energy Transportation
Getting Oil & Gas from A to B
Producing oil and gas at the wellhead is one thing. Then someone has to transport it to market through a network of pipelines that zigzag across the land. For that service, a fee will be charged. If all goes well, the Company operating the pipeline system makes money and passes some of that cashflow off to shareholders by way of a dividend.
How, then, do analysts determine the stock target prices on these pipeline transportation companies? The simple answer is - they look at growth. But this presents a cyclical problem. What if oil and gas prices are in a funk and there is not a lot of new production coming on-line that needs to be moved through pipelines? Analysts will move their recommends from buys to holds (or worse). Share prices will react in a like manner.
I have identified an energy transportation company whose assets span the entirety of Canada and the U.S. Moreover, this Company has made the conscious decision to diversify itself away from the cyclicality of oil and gas prices. It is engaging in a wide array of energy projects to hedge itself. I have looked at the daily chart using the Periodogram model and have determined that Mercury plays a key role in the price cycles that underpin the daily chart. The average analyst target price is well above current prices. What is needed now is a healthy pullback that aligns with one of the Mercury cycles. This will provide an ideal entry point for a long position.
Let’s take a deeper look at the Company in question:
