Another non-MLP way to play the pipeline business is El Paso Corporation (EP - commentary - Cramer's Take). The company is in the pipeline as well as exploration and production business. Currently it owns or has an interest in 42,000 miles of pipeline. The company has a backlog of $8 billion in new pipeline projects, as of the second quarter. The shares appear to have been subject to the recent hedge-fund liquidation, and the stock is off by roughly two-thirds from earlier highs. The stock currently trades at tangible book value and a P/E ratio of just 7. That is incredibly cheap for a company that's expected to grow earnings at a healthy pace for the next five years and recently guided higher for the year.
Pipelines are an economically attractive business. The assets are not easily replaceable, and the business has high barriers to entry. Much of the cash flow is regulated and should grow in the years ahead. Many of these companies pay out much of the cash flow to shareholders. They appear to be cheap relative to future prospects in the current market and could give some stability in these difficult times.
P.S. Will you be there when Cramer makes his next move?
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At the time of publication, Melvin had no positions in stocks mentioned, although positions may change at any time.Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.
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