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The fossil-fuel friendly policies of President Donald Trump have created a prime opportunity for what we like to call "Keystone pipeline stocks."
The name comes from President Trump's move this week to restart the approval process for the Keystone XL pipeline, the TransCanada Corp. (NYSE: TRP) project to bring oil from the Alberta tar sands of Canada to refineries in the southern United States.
The Keystone pipeline is the poster child for stymied oil infrastructure projects. The Obama administration delayed the $6 billion project for several years before finally rejecting it outright in 2015.
President Trump issued an executive order on Tuesday calling on TransCanada to re-apply and instructing the State Department to "take all actions necessary and appropriate to facilitate its expeditious review."
Another executive order urged the Army Corps of Engineers to grant the final easement needed to complete the $3.8 billion Dakota Access pipeline (DAPL).
But these actions have implications far beyond that of two oil pipelines...
This Is a Big Deal for Natural Gas and Oil Stocks
Energy infrastructure has gone from the top of the unwanted list under President Obama to having top priority under President Trump.
In a meeting Tuesday with auto company executives, President Trump suggested environmental regulations had gotten "out of control." And he promised that the process of obtaining permits would be greatly streamlined.
"We're going to either give you your permits, or we're not going to give you your permits," the president said. "But you're going to know very quickly. And generally speaking, we're going to be giving you your permits."
President Trump's determination to get these projects launched - part of his promises to create jobs and make America energy independent -- removes a big layer of uncertainty from present and future oil infrastructure projects.
And it's great news for Keystone pipeline stocks.
TransCanada said it has already started preparing its new application to build the Keystone XL pipeline. TRP stock rose 4.6% in the two days following President Trump's announcement.
The company behind DAPL, Energy Transfer Partners LP (NYSE: ETP), is keeping quiet - apparently to avoid drawing attention to the Native American protests that influenced President Obama to halt that project. But ETP stock has shot up almost 10% since Tuesday.
Those are the obvious winners, but there are a lot more Keystone pipeline stocks that will prosper under the Trump administration.
Here are our top three picks...
The Best 3 Keystone Pipeline Stocks to Buy Now
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Two key segments of the U.S. oil and natural gas industries stand to gain the most from a spike in the construction of energy infrastructure:
- Producers with large operations in the shale plays, particularly the Bakken and Marcellus regions
- Midstream companies that build and operate oil and natural gas pipelines
The producers have a great need to get their oil and gas out of the remote fields to refineries hundreds or even thousands of miles away. The lack of pipeline capacity has forced them to use more expensive alternatives, such as railroads.
The biggest oil producer in the Bakken region by far is Continental Resources Inc. (NYSE: CLR). After falling nearly 80% as part of the rout in oil prices, CLR stock more than doubled in 2016. But at $52.38, it's still well below its 2014 peak of more than $80.
Continental also regrouped in 2016, dialing back on capital spending and selling off some assets to bolster its balance sheet. CLR is well-positioned now to benefit from a boost in pipeline construction. According to Yahoo Finance, the one-year consensus price target is $60.28.
In the Marcellus region, the name of the game is natural gas. Here, Range Resources Corp. (NYSE: RRC) is the top dog. It's sitting on vast reserves both in the Marcellus and in Louisiana. As gas prices rise, it will be able to develop more of those reserves, and new pipelines will help Range get it to market.
At $34.20, RRC stock is trading 63% below its 2014 peak. It has a one-year price target of $47.44.
Among the midstream companies, Kinder Morgan Inc. (NYSE: KMI), America's largest energy infrastructure company, is the best bet. Like many oil and gas companies, falling oil prices took a toll. But it was a blessing in disguise, as it forced Kinder Morgan to ax ill-advised projects while shoring up its finances.
With a cooperative Trump administration, future Kinder Morgan projects will come together more rapidly - and start contributing to the bottom line sooner. Trading at $22.44, KMI stock is down nearly 50% from its 2015 peak.
The one-year price target is $25.33, but with earnings per share expected to double over the next three years, expect a lot more upside over the longer term.
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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.