The recent deal by Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) to buy Dominion Energy’s natural gas pipeline for $4 Billion U.S. highlights a shifting sentiment among some value investors for specific assets in the oil & gas sector. With commodity prices still depressed in this sector, asset prices across the board have hit new lows, forcing some investors into the fray. In this article, I’m going to highlight why I think energy infrastructure assets ought to be on every investor’s radar moving forward.
As far as the energy supply chain goes, energy infrastructure assets and specifically, transportation pipelines, are somewhat insulated from the upstream commodity price pressure producers feel. With a vast majority of the revenue generated by pipeline operators tied to 'take or pay' or 'cost of service' contracts, these energy infrastructure companies have a high level of cash flow stability compared to most other companies operating in this sector.
These highly stable cash flows make for relatively easy forward projections. Making valuations of such assets also becomes accordingly simple. With some of the smartest value investors on the planet piling into these cheap assets at a time when so many are exiting the sector, having energy infrastructure stocks on one’s radar looks to be a winning strategy, particularly if these assets fall below book value in the near term.
Invest wisely, my friends.
