This Shale Energy Stock to Buy Is Up More than 455%

stocks to buy
Click to enlarge

We found an energy stock to buy that has reaped the rewards of the shale boom - without ever drilling a well.

It has seen its stock rise 455% since March 2009.

That's more than twice the gain of the Standard & Poor's 500 (195%) and nearly triple the gain of the Dow Jones Industrial Average (162%).

This shale energy stock to buy is involved in the transportation of oil. And it benefits even more from shale gas.

To see why this stock to buy has done so remarkably well - and will continue to outperform the market - take a look at the shale energy market.

Shale Oil and Gas Production Is Taking Off

Over the coming decades, production of U.S. natural gas is expected to double from 2006 levels. That's mostly due to shale gas.

The prospect of decades of cheap and abundant natural gas has attracted more than $100 billion in investment to the U.S. chemical industry, according to the American Chemistry Council.

Most of that - about $90 billion - is directed to the construction and expansion of petrochemical plants along the Gulf Coast. The stock to buy we're talking about is ideally positioned to profit from this expansion, as we'll soon see.

Stock to buyThen there's shale oil. From a peak of 9.6 million barrels a day, total U.S. oil production dipped as low as 5 million barrels a day in 2008.

But the shale oil boom has reversed that trend.

In fact, shale oil production has progressed so rapidly that it keeps getting ahead of U.S. Energy Information Administration (EIA) forecasts.

In September the EIA revised is projection for 2014 upward to 8.54 million barrels a day. Just one month later U.S. oil production hit 8.97 million barrels a day.

That kind of growth has strained domestic oil transportation systems, from pipelines to railroads. At the same time, it has created opportunities for other means of transporting oil - like inland shipping.

And one company in particular has been able to make the most of this opportunity...

Stocks to Buy: How Kirby Corp. (KEX) Dominates the Shale Energy Boom

We're talking about Kirby Corp. (NYSE: KEX), America's largest tank barge operator.

KEX is profiting from the shale energy boom in many ways. Shale oil is the most obvious.

Moving oil by barge was an almost non-existent business as recently as 2009. But oil barge traffic has exploded from less than 5 million barrels in 2010 to more than 37 million barrels last year.

While moving crude oil by barge is slower than moving it by rail, it can be up to a third cheaper.

Kirby jumped right in. The Houston-based company moves crude oil from the Midwest via the inland waterways of the Mississippi river system. Last year Kirby started moving Bakken crude from rail terminals in the Pacific Northwest south to refineries along the California coast.

That's one reason the revenue and earnings per share of KEX have more than doubled over the past several years. The company went from earning $2.15 in 2010 to $4.44 last year.

When KEX reported its third-quarter earnings last week, it raised its guidance for the 2014 fiscal year to $5.14 per share from $5.04.

That's because apart from moving more oil, another shale-related business - its diesel engines - more than doubled year over year.

Kirby sells and remanufactures both marine and land-based diesel engines. Companies that drill for shale oil and gas using hydraulic fracturing - fracking - have been snapping up Kirby's diesel engines as they ramp up production.

That pushed Kirby's diesel revenue from $114.9 million in the year-ago quarter to $232 million.

But even those two factors aren't the best reason KEX is a top shale energy stock to buy.

Kirby Corp. Growth Will Be Fueled by Shale Gas

That would be Kirby's petrochemical transport business. Two-thirds of Kirby's river-based shipping business is petrochemicals.

And while the shale gas boom has boosted this business, the best is yet to come.

You see, most of those new chemical factories will only start coming online next year. And the expansion is expected to go on for several years.

According to the Federal Reserve Bank of Dallas, U.S. petrochemical capacity will increase by one-third by 2017.

And no barge company is better prepared for this windfall than Kirby. It prides itself as the dominant player in the petrochemical barge business. Much of the new business will be theirs for the taking.

[epom key="ddec3ef33420ef7c9964a4695c349764" redirect="" sourceid="" imported="false"]

Kirby is planning ahead. It's currently expanding its overall tank barge capacity to 17.8 million barrels. More new barges are under construction and will keep capacity rising.

In addition, the extra cash flow has allowed KEX to pay down debt. That has strengthened the balance sheet for potential acquisitions.

Kirby even has firewall against cheap foreign competition, thanks to a 94-year old maritime law. The Merchant Marine Act of 1920, also known as the Jones Act, requires that all goods shipped between U.S. ports be sent on U.S.-built and owned vessels crewed by U.S. citizens.

Kirby stock closed Monday at $110.90, up from $19.95 in March 2009. Yet even after a 455% increase, there's room for KEX stock to run.

KEX has a one-year price target of $131.92. That's a respectable 19% gain. But given so many long-term catalysts, this stock to buy should reach the $150 to $160 range over the next few years.

Stocks to Buy for Income Plays in the Energy Sector: Kirby isn't the only energy transportation stock getting fat from the shale energy boom. An entire class of stocks - Master Limited Partnerships - are more than worth a look. And here are two MLPs that look especially promising right now...

Follow me on Twitter @DavidGZeiler.

Related Articles:

About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

Read full bio