Slowing inflation is surely bringing some respite to U.S. consumers as they are left with more money to spend. The main reason behind inflation falling to a two-and-a-half year low is the 8.1% drop in gas prices during April. Due to booming domestic hydrocarbon production, our dependence on foreign oil has decreased massively and oil prices are in no hurry to run up. This does not benefit oil producers and distributors, whose margins are squeezed. However, buying oil and gas pipeline stocks such as Oiltanking Partners LP (NYSE:OILT), Atlas Pipeline Partners, L.P. (NYSE:APL), and Boardwalk Pipeline Partners, LP (NYSE:BWP) is a way to play this decline. These companies largely focus on the volumes they handle. It is no secret that low gas prices will prompt people to drive more. This scenario calls for transportation volumes to go up, directly benefiting pipeline companies.
Oiltanking offers much
Oiltanking Partners LP (NYSE:OILT) offers storage and transportation services to oil companies through its assets located along the U.S. Gulf Coast on the Houston, Texas Ship Channel and in Beaumont, Texas. Over the years, the company has grown its revenue and profit at a steady rate. This trend was visible in the latest quarterly results as well, as it reported revenue of $40.2 million and earnings per share stood at $0.48, both up from prior year quarter’s $34.3 million and $0.40, respectively. Therefore, it’s no wonder that net profit margin improved by 3.7% to a high of 50.2% for the period. This is one of the highest net profit margins in the industry and partially explains why the stock is valued at a relatively high price equity ratio of 37. At its current market price of $50, the stock offers a dividend yield of 3%, although analysts at Raymond James expect the stock to touch $54.
Most undervalued of the lot
Investors can find a reasonably priced stock in Atlas Pipeline Partners, L.P. (NYSE:APL), another solid play in this space. A flurry of positive earnings in recent quarters has caused the stock to go up nearly 30% over the last six months, but it still trades at forward price earnings of 16.6 while price by sales and price by book value ratios of 2.2 and 1.7 respectively further highlight its attractiveness. At the same time, it has completed acquisition of Teak Midstream, a private midstream company in the prolific Eagle Ford shale. The acquisition will go a long way in reducing Atlas Pipeline Partners, L.P. (NYSE:APL)’s commodity sensitivity as nearly 80% of the cash flow of Teak Midstream is in fixed-fee format. The acquisition was largely funded by the proceeds of a recent offering of common shares and convertible preferred units.
Atlas Pipeline Partners, L.P. (NYSE:APL) has a reasonable debt equity ratio of 0.88.
Boardwalk Pipeline Partners, LP (NYSE:BWP) is another midstream player with strong fundamentals. The company owns and operates three interstate natural gas pipeline systems. Boardwalk Pipeline Partners, LP (NYSE:BWP)’s price target was recently increased to $31 by Deutsche Bank following strong set of numbers in the first quarter of 2013, which saw revenues jumping nearly 5% to $328.5 million while profits increased 9.5 % to $101.4 million. This translates into a net profit margin of 30.9 % which is pretty solid and shows an improvement over the margin of 29.6 % in the first quarter of 2012. The stock is currently available at slightly below the $31 mark, at a price equity ratio of 24.3, and it offers an excellent dividend yield of 6.9%. It may not be a good time to buy this stock after the recent run-up, but a technical correction can make it attractive.
The Foolish bottom line
These stocks represent companies with healthy profits and growing revenues. More importantly, they offer good dividend yields that are likely to be maintained as profits grow.
The article Bargain Stocks Amid Declining Gas Prices originally appeared on Fool.com is written by Jacob Wolinsky.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
