It was only a few weeks ago that the case for Energy Transfer (NYSE:ET) improved dramatically. Following an unprecedented nationwide shutdown due to the novel coronavirus, several states began flattening their infection curve, sparking broader reopening measures. Later, better-than-expected economic reports suggested that America was on the rebound. During this time, ET stock enjoyed substantial momentum.
However, as new daily cases of Covid-19 started to rise, along with associated hospitalizations, Energy Transfer started to fade. Of course, ET stock wasn’t the only energy-related investment to experience softness. From stalwarts like Exxon Mobil (NYSE:XOM) to smaller names like Apache Corporation (NASDAQ:APA), investors in this space suffered much frustration.
Now, with the pandemic rearing its ugly head in a shocking manner, how should you respond to ET stock? Here’s the good, bad, and ugly regarding Energy Transfer, starting with the negative.
Dakota Access Headaches for ET Stock
Owned by Energy Transfer, the controversial Dakota Access oil pipeline represents a significant portion of the company’s operations. However, it has riled environmental groups and several indigenous nations. Earlier this month, a federal judge ordered that the conduit be shut down while an environmental review is conducted.
Naturally, management wasn’t too thrilled about what they perceive to be judicial oversight. According to Energy Transfer spokeswoman Vicki Granado, U.S. District Judge for the District of Columbia James E. Boasberg “exceeded his authority and does not have the jurisdiction to shut down the pipeline or stop the flow of crude oil.”
Management later clarified that the organization has no intention of defying Boasberg’s order. However, if Energy Transfer doesn’t back down, it could end up “playing a very dangerous game,” according to Earthjustice lawyer Jan Hasselman. Hasselman represents the Standing Rock Sioux Tribe against Dakota Access.
That said, Energy Transfer has multiple avenues to contest the court order. Currently, the company is pursuing an appeal, as well as asking the U.S. District Court for the District of Columbia to suspend the decision. Failing these efforts, it can also appeal to the U.S. Supreme Court.
Nevertheless, court battles are rarely beneficial. And with the novel coronavirus resurging just as the energy industry was making a comeback, this is a headache that ET stock could do without.
One Bright Light for Energy Transfer
As you know, the Dakota Access has strong political implications. Facilitating the pipeline was one of the top priorities of the business-centric Trump administration. However, with opinion polls overwhelmingly favoring former Vice President Joe Biden at the moment, things look bleak for the incumbent and indirectly, ET stock.
However, as we head toward the election, I’m not entirely convinced that Biden and the Democrats have a guaranteed path to the White House. For one thing, it was this hubris that failed to acknowledge Hillary Clinton’s blind spots. Frankly, it doesn’t seem like the Democrats are learning their lesson.
Second, the U.S. is not the bastion of the educated as some might believe. According to The Economist a few months before the pandemic struck, “Poorly educated voters hold the keys to the White House.” Even in the new normal, I believe this to be the case. Indeed, when you consider the ideological split over coronavirus perceptions, education will likely play a bigger factor in 2020 than previous election years.
Historically, this dynamic favors the Republicans. And certainly, President Trump appeals to the less-educated electorate much more so than Biden.
Finally, as Fox News contributor Liz Peek opined, you can only push the American people so far. Calls to defund the police, in addition to the pernicious cancel culture may scare white and/or conservative-leaning voters toward Trump.
So, don’t discount “The Donald” pulling off another remarkable victory. In that sense, the long-term narrative for ET stock has a potentially viable tailwind.
Can’t Get Over the Ugly
But would I personally bet on ET stock? I can wax poetic about respecting both sides of the argument. But as an investor – and assuming that you’re not trading on advanced tactics like volatility – you’ve got to make a choice one way or the other.
In my opinion, I believe ET stock is a pass. Honestly, I think the political angle of an unlikely Trump victory is more attractive than the negatives regarding the Dakota Access controversy. However, I don’t want to fight the tape that is the Covid-19 pandemic. It’s getting worse. Moreover, recent history shows us the dangers of not taking the coronavirus seriously.
As The Washington Post reported, California rolled back its reopening, with Governor Gavin Newsom ordering the “statewide closure of all bars and halted the indoor operations of restaurants, wineries, theaters and a handful of other venues.” This move aligns with other states that are pausing their reopening or reintroducing certain restrictions.
Obviously, this doesn’t directly impact ET stock. However, the American people are now used to shutdown orders and living in the new normal. Therefore, the demand loss for fuel could come very quickly – many folks probably have gotten used to getting most everything delivered to them via contactless services.
Until we can figure out this coronavirus conundrum, I’m going to need a very compelling case to risk my money on oil.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.