Tallgrass Energy Partners LP (NYSE:TEP) stock has been slightly profitable this year to date, if you add in the mouthwatering 8.5% dividend.
But if you look at the past month, it has taken a significant hit, which is odd, since it came in with pretty stellar numbers on Nov. 2.
This is what it’s like to deal with the energy markets these days, as U.S. production once again attempts to decouple from the vagaries of foreign oil, especially OPEC imports.
OPEC continues to look for ways to make trouble for U.S. production, even for domestic demand. And competing beyond U.S. borders can be tricky given the uneven economic recovery happening in the world. Add to that Russia and China looking to get a foothold on Middle East oil by undermining the petrodollar in the process.
The “petrodollar” is the U.S. dollar. After WWII the British transitioned the global “currency of the realm,” from the British pound sterling to the U.S. dollar. All commodities are priced in dollars on the global markets. That means any country wishing to trade in commodities has to hold U.S. dollars.
One of the most strategic markets is oil and other energy products. China is cutting deals to buy Saudi oil with yuan directly. The Russians are also selling their oil and gas on the markets in local currencies, getting around the petrodollar.
However that all plays out is a longer term issue. For now, it’s just one more reason the energy patch is volatile.
But TEP stock is in a great position. It’s a midstream U.S. energy player. That means it owns pipelines and storage facilities that move the energy from the fields to distribution points and refineries.
For use of the pipelines and facilities, TEP collects a fee on the volume moved. The higher the volume, the more money it makes.
The beauty of this is, it doesn’t matter what the cost of oil or natural gas is, it makes its money on the volume through its pipes.
This revenue model means midstream companies like TEP are less affected by the ups and downs of energy pricing and more on underlying economic growth.
Granted, hurricane season didn’t help but it certainly didn’t hurt TEP’s performance for the quarter. Revenue was up nearly 15% compared to the same quarter last year. And earnings were up more than 20%.
The good news for us is, Tallgrass stock is still being driven by oil prices and not by the fundamental growth in its business. Until those are decoupled, TEP will stay cheap and continue to deliver a huge dividend.
But once it gets a few solid quarters under its belt, along with other midstream firms, it will be off to the races. If you can handle some volatility and keep your eye on the long-term prize, now is a great entry point for TEP stock.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.