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Kinder Morgan storage tanks in Wilmington, Calif. The comany’s stock can offer stability.
Bing Guan/Bloomberg
The price of gasoline has been falling steadily for over two months, and with it many oil and gas stocks. Gasoline, of course, isn’t the only fuel made from crude oil, but it’s the most prominent one, and the fortunes of several stocks hinge on the price. Still, for those who want to avoid the volatility of gasoline prices, it’s possible to build a portfolio that’s less sensitive to changes in prices.
Barron’s screened for energy stocks in the S&P 500 that have risen since June 14, the day that average U.S. gasoline prices peaked at an average of $5.02 a gallon, according to AAA. Gasoline has since fallen to $3.92.
Energy markets have traded in unique patterns this year. The historical relationship between oil and natural gas has fallen apart. A global natural gas shortage has caused the price of that commodity to soar to its highest level in over a decade , even as oil prices have been coming back down. In general, companies that focus on producing or transporting natural gas have performed better than oil-focused ones.
Since the peak in gasoline prices, companies that are less sensitive to underlying commodity prices have performed better than those more directly dependent on strong prices.
| Company / Ticker | Recent Price | Market Value (bil) | Price Change* | Dividend Yield |
|---|---|---|---|---|
| Kinder Morgan / KMI | $18.69 | $43 | 5.8% | 6.8% |
| ONEOK / OKE | 63.87 | 29 | 6.5 | 6.4 |
| Occidental Petroleum / OXY | 64.86 | 60 | 4.5 | 0.1 |
| Williams Companies / WMB | 34.98 | 43 | 9.0 | 6.3 |
*Since June 14, 2022
Source: Factset
The top performers have mostly been companies that operate pipelines and other energy infrastructure, some of which make money based on longer-term contracts. They also have high dividend yields, giving them more stability during times of price volatility. That includes
Kinder Morgan
(KMI),
ONEOK
(OKE) and
Williams Companies
(WMB).
Some analysts say that the companies have regained investor confidence because of their stable dividends.
“Over recent quarters, midstream has made significant progress in rebuilding a track record of growing payouts,” wrote Stacey Morris, head of energy research at VettaFi. “Names that cut their dividends during the energy market volatility and pandemic-related uncertainty of 2020 have largely returned to growth.”
High demand for natural gas is clearly helping some of the pipeline operators. On its latest earnings call, Williams Companies CEO Alan Armstrong said that he sees little sign of natural gas demand slowing and Williams is “the most natural gas-centric of the large-scale midstream companies.”
“This demand growth continues to increase in the face of higher natural gas prices, which speaks to the continued inelastic demand for natural gas, both here and abroad, and the fact that natural gas remains a bargain versus alternative fuels,” he said.
Occidental Petroleum
(OXY) produces both natural gas and oil and is a favorite of Warren Buffett’s, which may have helped the stock rise in recent months as he bought more.
Berkshire Hathaway
now owns more than 20% of Occidental.
Write to Avi Salzman at avi.salzman@barrons.com
