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Energy Transfer: A Bargain in the Midstream Sector

Energy Transfer emerges as a strong buy amid market sell-off. Trading under $20, the company benefits from favorable midstream conditions, offering solid growth potential based on current projects and investments.

Date: 
AI Rating:   7
Midstream Sector Resilience
The energy midstream sector has demonstrated resilience during the current market sell-off, indicating a potential opportunity for investors. Specifically, Energy Transfer (NYSE: ET) is highlighted as a stock that is trading at attractive valuations, presenting as a compelling buy. It trades around 10% off its January 2025 highs, currently priced below $20.

Growth Opportunities
Energy Transfer operates in a favorable environment, supported by the administration’s push for fossil fuel production over green alternatives. The demand for energy, particularly due to the rise of artificial intelligence, is driving significant power needs. The company benefits from its strong foothold in the Permian Basin, focusing on transporting associated natural gas, which often faces different market conditions than oil.

Due to strict environmental regulations limiting flaring, the cheap natural gas produced in this area allows Energy Transfer to serve power companies and data centers effectively. The company's increased capital expenditure to $5 billion—for growth-oriented projects—indicates confidence in continued growth.

Project Pipeline
Energy Transfer is working on several strategic initiatives, including the Hugh Brinson Pipeline project, which increases natural gas takeaway capacity. Additionally, a deal with CloudBurst to supply natural gas to an AI data center in Texas adds to its pipeline of growth projects. The company's potential Lake Charles LNG project could further bolster its market presence, given its agreement with Chevron for a 20-year sale and purchase agreement if it progresses.

Attractive Valuation Metrics
From a valuation perspective, Energy Transfer is seen as cheap, trading at an EV/EBITDA multiple of under 8.3 for 2025 estimates, which is significantly lower than its peers, typically around 13.7 from 2011 to 2016. The stock also offers a well-covered forward yield of 6.9%, making it an appealing investment proposition.

Given the energy sector's dynamics and Energy Transfer's strategic positioning with solid growth projects and an attractive valuation, the stock is recommended as a compelling investment opportunity.
Stocks:  ET CVX