As far as my list of top value picks grow, Enbridge Inc. (TSX:ENB)(NYSE:ENB) has remained on the top of my list for many reasons. Included in the broad energy sector, Enbridge has dawdled the headwinds facing energy broadly.
The risks associated with weak commodity prices has manifested itself in counterparty risk for Enbridge, that is, the risk that Enbridge’s counterparties’(producers) ability to pay via insolvency risks in the oil cache.
These risks are somewhat overblown in my view, for two main reasons. The first is the quality of Enbridge’s counterparties. As one of the biggest energy infrastructure companies in the oil patch, Enbridge has been able to contract with the largest producers holding the best credit quality.
Secondly, the contracts Enbridge has with said producers are mainly take or pay contracts, which minimize Enbridge’s risk to declining production volumes by counterparties.
The company’s balance sheet does include a significant amount of debt. This fact has turned some investors off from considering Enbridge as a core holding.
The company’s cash flow generation, I see as robust enough to provide confidence in the company’s ability to make its interest obligations on its debt as well as pay its dividend to investors. I see this as a key reason to own this value stock today.
Invest wisely, my friends.
