Finding the best energy stocks to buy in this troubled environment is no easy task. Whether you’re looking at risky small caps or entrenched majors like Exxon Mobil (XOM) and Chevron (CVX), underperformance seems to be the name of the game for the energy sector.
It’s not surprising why. While crude oil prices have rebounded from 2015 lows under $50 a barrel, the long-term outlook for energy prices is weak as Saudi Arabia continues to flood the market with crude to keep prices low. At the same time, natural gas is readily abundant thanks to aggressive fracking in the U.S. that brings a steady supply to market.
But there is a ray of hope for energy stocks — if you’re an investor with a long-term horizon.
Yes, smaller exploration firms continue to see business dry up, and even multi-billion-dollar firms like Transocean (RIG) and Halliburton (HAL) have suffered mightily in the last year or so. But a focus on energy infrastructure plays – particularly pipeline stocks that are simply “toll takers” instead of producers reliant on fluctuation in oil or gas prices.
InvestorPlace writer Aaron Levitt recently put together a great list of high-yield MLPs a few weeks ago with big dividends and minimal exposure to energy price volatility, which include:
- Enterprise Products Partners (EPD)
- Holly Energy Partners (HEP)
- Plains All American Pipeline (PAA)
- TransCanada Corporation (TRP)
- Williams Partners (WPZ)
I particularly like Williams. It’s simply a toll-taker, operating a vast pipeline and processing network, and is thus insulated from volatility in energy prices.
And thankfully for WPZ investors, that pipeline network is in some of the hottest areas for energy right now, including shale fields in Pennsylvania and Ohio that are prime targets for natural gas fracking. Williams also recently acquired Access Midstream Partners to expand its grip on energy infrastructure.
And if that’s not enough for you, how does a dividend yield of nearly 7% strike you?
WPZ doesn’t offer the same explosive growth potential as a small-cap exploration firm, but if you’re a patient investor in it for the income, there is a lot to like about this high-yield MLP – even with an uncertain energy outlook right now.
And if you’re thinking of writing off energy stocks altogether, remember that while it’s tempting to follow short-term trends … churning your portfolio can be hazardous to your wealth. Never give up on entire sectors like energy or materials or what have you in a diversified, long-term portfolio — particularly if you care about income and get a roughly 7% yield in a stock like Williams Partners!
The good investors know how to be patient and look to the long-term instead of just chasing their tail. So before you write off energy stocks, consider a look at high-yielding infrastructure MLPs right now.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at email@example.com or follow him on Twitter via@JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.