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Cramer: Are pipeline stocks done taking a beating?
With the price of crude rebounding, Jim Cramer wondered if it could be time to circle back to the pipeline stocks that have been beaten badly as of late.
"This group had been crushed, courtesy of worries about lower energy prices and the possibility that the Fed will raise interest rates," the "Mad Money" host said.
The fear of higher rates made the high yields provided by pipeline stocks less attractive. However, this group has finally started to make a comeback in the past week.
Enbridge Inc (NYSE: ENB) operates the world's longest crude oil and natural-gas liquids pipeline system that runs through Canada and the United States. It also contains a major natural-gas-gathering network.
What Cramer found most interesting about Enbridge is that like most pipeline companies, it is much less exposed to the price of oil and gas than most people would think.
It acts more like a toll-road operator that makes money based on volume. It also has some of the best dividend growth in the industry, with payout forecast to increase by 14 to 16 percent per share from 2016 to 2018.
Yet, despite the fact that Enbridge is less exposed to the price of oil and gas, this stock has taken a beating as if it were a major oil producer. Has the stock finally finished going lower?
To find out, Cramer spoke with CEO Al Monaco. He explained that the structure of Enbridge's business model is one that is resilient as it is directly connected to refineries and has a low cost infrastructure.
"I think the biggest issue is the commercial underpinning of our assets…and the fact that we've got a low-cost structure allows us to really gain in this kind of environment. In fact, in the environment we are in today, we are extremely well positioned," Monaco said.
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The CEO believes that even though Enbridge is less exposed to the price of oil, the reaction to his stock is simply because there has been mass selling on the market that has been indiscriminate.
"Our point of view is this: regardless of all that, over the next five years, there is a very high degree of predictability that our cash flows are going to grow. And that is simply because of the business model and the resiliency to these issues that are out there. And frankly, that's how we built the business model," Monaco said.
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