Despite the rise of electric vehicles and their mainstream integration, I was willing to give the oil industry a chance. No matter how cool EVs are, you can’t just overturn an entrenched paradigm in a few years’ time. But that was before the novel coronavirus. During this pandemic, there are few things worse off than oil. Clearly, this has implication for midstream giants like Kinder Morgan (NYSE:KMI). Year-to-date, KMI stock is down a staggering 42%.
That’s no anomaly: The Global X MLP & Energy Infrastructure ETF (NYSEArca:MLPX) is down 39% in the same YTD period. KMI stock is the 27-stock exchange-traded fund’s third-largest holding, at a 9.21% weighting.
Still, I’ve perused analyst opinions and it appears that sentiment is gradually improving for the energy firm. As InvestorPlace contributor David Moadel noted, KMI stock has long been a great platform to enjoy generous dividend payouts. Further, indications are that Kinder Morgan will stick to its guns. Moadel wrote that, “if you’re in the market for a dividend darling that won’t cut and run when the going gets tough, consider making room for KMI among your long-term energy-sector holdings.”
Many folks are considering that very idea. Admittedly, it does seem like a reasonable concept. As several of my colleagues have brought to the table, pandemics are awful but they don’t last forever. Plus, when you consider the size of the U.S., the impact, percentage wise, isn’t apocalyptic.
Don’t get me wrong, any life lost is a tragedy, but the health crisis alone isn’t a reason to avoid KMI stock. Additionally, we are gradually getting used to the new normal. For instance, one of the big news items recently is that Target (NYSE:TGT) is squaring off with Amazon (NASDAQ:AMZN) and its rescheduled Prime Day.
If consumer sentiment was weak, you’d think that Target would do everything in its power to avoid Amazon. That’s not happening, which is a plus for KMI stock.
It’s All About Demand for KMI Stock … or Anything Oil
As one of the largest energy infrastructure companies, Kinder Morgan will be relevant so long as the economy is running. According to its website, the midstream specialist operates “approximately 83,000 miles of pipelines and 147 terminals.” So, if KMI stock goes down, we’d have bigger problems on our hands.
Unfortunately, that’s exactly the point I’ve been trying to make about oil-related companies in general. Many of you who are familiar with my work know that I’ve relied on data from TomTom.com to demonstrate that on a year-over-year basis, automotive traffic is down about 30% to 40% in major American cities. If demand is down by that much, that’s a killer for KMI stock and similar investments.
Not too long ago, I took a road trip to Los Angeles. Indeed, as the TomTom.com data suggests, traffic was conspicuously light. During rush hour and on the notorious 405 freeway, I experienced minimal delays. Otherwise, I was able to move briskly, which was bizarre.
But if you don’t trust my observations nor TomTom, how about the Bureau of Transportation Statistics (BTS)? For the week beginning Sept. 13, BTS reported that the number of trips between one to 25 miles was down 38% from the year-ago period.
Sure, millions of people are working from home, which invariably cuts into this statistic. However, you should also consider that many of the errands that we run fall into this mileage range. For example, 88% of Americans drive the family car to get their groceries. And that distance-driven averages to just under four miles.
In my opinion, that’s a major headwind for KMI stock. Simply put, Americans are getting used to the new normal. Yet they’re still not driving anywhere close to their pre-pandemic frequency.
Don’t Ignore the Obvious
One of the strange dynamics of 2020 is some Americans’ willingness to toss common sense out the window. Look no further than the mask debate. How many times have we seen people completely lose their mind over mask-wearing mandates?
That very issue came up during the presidential debate. President Trump mocked former Vice President Biden, stating, “Every time you see him, he’s got a mask … He could be speaking 200 feet away from it, he shows up with the biggest mask I’ve ever seen.”
Sure enough, the President and the First Lady have tested positive for Covid-19. As far as I’m aware, Biden has not.
The point is, properly worn masks of appropriate materials help prevent droplets from spreading. When we all do it, the effect is magnified. It’s obvious, it’s common sense.
Well, I argue it’s the same principle with KMI stock and other oil companies. While it’s wonderful that Kinder Morgan is committed to paying their shareholders, that commitment is unsustainable unless the present circumstances change dramatically.
The data, whether from the BTS or TomTom or any other reputable source, is accurate. For what it’s worth, I saw it with my own eyes. People just aren’t consuming fossil fuels to a broadly sustainable degree. Until they do, I’d hold off on Kinder Morgan or any of its peers.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.