Playing the Pipeline: TransCanada and Marathon Petroleum

NEW YORK (TheStreet) -- Will the Keystone XL pipeline be approved? With a recent U.S. State Department report finding the northern part of the oil and gas pipeline won't have a significant impact on greenhouse gas emissions, it seems more likely.

Even though there are still roadblocks to overcome, such as a Nebraska state court's action Wednesday -- two of the companies that will profit if the pipeline is approved by the Obama administration are TransCanada (TRP) and Marathon Petroleum (MPC).

TransCanada owns and operates the Keystone XL pipeline that would bring crude from the Canadian oil sands in Hardisty, Alberta, down to refineries in Oklahoma, Illinois and the Texas Gulf coast.

Marathon Petroleum, meanwhile, is in the business of refining oil and selling gasoline. It is a spinoff of Marathon Oil (MRO).

TransCanada is a leader in the responsible development and reliable and safe operation of North American energy infrastructure. Its network of wholly owned pipelines taps into virtually all major natural gas supply basins in North America.

For investors it's a profitable business with a trailing 12-month (TTM) operating margin of more than 32% as of Sept. 30. Trading around $45, it's down 1.4% for the year to date.

The company reports earnings Thursday. If it can come close to the third quarter's year-over-year EPS increase of 31%, which analysts are expecting, according to Yahoo! Finance, investors will be thrilled.

Here's a one-year chart of TransCanada's share price and 100-day exponential moving price average.

TRP Chart
TRP
data by YCharts

If TransCanada's share price penetrates the orange line, its recent history suggests the possibility of a correction. TransCanada's dividend yield is 3.84% when shares are purchased at $45. The lower the purchase price, the higher the dividend yield.

Meanwhile, Marathon Petroleum also benefits from the pipeline when the oil gets to the refinery in Cushing, Okla. Marathon Petroleum, which I consider one of the best values among energy stocks, will be able to do what it does best -- refining -- at a lower cost and with higher margins if Canadian oil flows through Keystone's pipelines.

Below is a one-year chart of Marathon Petroleum illustrating how solidly above its 100-day EMA the share price stands today.

MPC Chart
MPC
data by YCharts

With a forward (one-year) PE ratio of just above 8 and its price-to-earning-to-growth (PEG) ratio of only 0.9, Marathon Petroleum is a very good value. The analysts who follow the company have an average one-year price target for the stock of close to $104, compared to the $87 where shares closed Wednesday. Investors will also like the nearly 2% dividend they'll receive by owning Marathon Petroleum at the current share price.

When politicians and environmental groups realize the Keystone XL is most likely the safest way to ship Canadian oil to America's oil refineries, TransCanada and Marathon Petroleum and their shareholders will be gushing.

At the time of publication the author had positions in TRP and MPC.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

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