Is Energy Transfer (NYSE:ET) overpriced? Currently trading around $7.50, CEO Kelcy Warren hasn’t bought any ET stock since the end of February.
According to Energy Transfer’s June presentation, Warren has purchased 15.3 million units of the pipeline company’s stock over the past 12 months. While that is a sign he’s committed to the future success of the business, it also points out how the novel coronavirus has affected business decisions in 2020.
Typically, under such a correction – ET stock has a year-to-date total return of -41.7% – insiders would be buying like crazy. That’s especially true of Warren, who co-founded the company in 1995, and now is said to own 260 million shares, good for almost a 10% ownership stake.
However, according to regulatory filings, the last shares Warren purchased in the open market were the 300,000 he bought on Feb. 28 at an average price of $10.80 a share. Since then, ET stock fell to a 52-week low of $3.75 on March 18, before recovering some of those losses over the next three months.
That said, ET remains 26% below where the CEO was buying in February. Warren’s said to be worth $4.8 billion, making him one of the wealthiest people in Dallas, the head office for the company.
So, why isn’t he buying?
A Plausible Explanation for Not Buying ET Stock
Unfortunately for owners of ET stock, billionaires also like to diversify their investment holdings. In the case of Warren, he owns a recording studio in Austin, Texas, and is a huge music fan. His Music Road Records music label even produced a tribute album of Jackson Browne songs and had the singer perform at the Cherokee Creek Music Festival, which was held at his 8,000-acre ranch in Cherokee, Texas.
Let’s just say he’s got other interests.
At current prices, Warren’s ET stock is worth about $2 billion. If the Dallas Morning News estimate of his net worth is accurate, the CEO’s currently got about 44% of his wealth invested in Energy Transfer based on a net worth of $4.8 billion. However, when the newspaper published the article in March, the stock was worth $3 billion.
So, his net worth has potentially dropped to $3.4 billion, to accommodate for the decline in Energy Transfer’s stock price. While that’s still a lot of money, Warren’s spent approximately $182 million on ET stock over the past 12 months, including about $44 million in February alone.
At some point, you do have to draw the line. It appears, despite the fall in its share price, that the buying is over for the time being.
What Does This Mean for Shareholders?
Since the CEO’s 13D amendment filed in October 2018, Warren made nine Form 4 filings with the Securities and Exchange Commission. Of the nine, Warren’s highest price paid for Energy Transfer shares was on Nov. 11, 2018, when he purchased 1.5 million shares at $15.64 a share.
So, between October 2018 and February 2020, the CEO was willing to pay between $10.64 on the low end (February 27, 2020) and $15.64 on the high end.
InvestorPlace contributors Charles Sizemore and David Moadel both recently recommended the company’s stock.
Sizemore picked Energy Transfer at the beginning of 2020 as part of InvestorPlace’s 10 Best Stocks for 2020. Although he recognizes the stock’s had its troubles in 2020, it’s prone to volatility. However, with a distribution yield of 15%, it’s not likely to remain below $10 for too long, especially if Joe Biden gets elected to the presidency.
As for Moadel, he believes investors have a unique opportunity to buy one of America’s iconic energy infrastructure plays at dirt-cheap prices, and a safe income investment to boot.
I’m not a fan of the oil and gas industry, but I can’t argue with their logic. As energy plays go, ET appears to be one of the better ones to buy for the long haul. If you own it, I’d hold. Buy some more if it falls farther into single digits.
At some point, Warren will restart the buying.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
