Anthony Speciale Stock Market Analyst

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Listen to What the Market Tells You, Not What the Pundits Say

We’re closing in on the end of the year and the holiday season, which is one of my favorite times of the year!

And this week also kicks off “prediction season.” From now until late January, every Wall Street talking head will be giving their predictions about the markets, the economy and what’s going to happen in the world during 2022.

They’ll tell you with great authority exactly where the market and interest rates are going to be at the end of 2022 and give you the exact path that currencies and other commodities will take during the course of the year.

But 99.9% of them are going to be very wrong! What you have to understand about all of these predictions is that they are really just marketing. I have seen this for years…

Folks will come out and give you their predictions for the market, and if they are right we are going to build a statue to these people, throw billions of dollars at their feet for them to manage and they’re going to take all that cash and charge fees… and they’ll probably never be right again.

The most glaring example that stands out in my mind right now is Elaine Garzarelli, who called the crash of 1987. She nailed it, and she collected billions of dollars and even had her own mutual fund. She was running large institutional accounts, but she was literally never right again, and the fund was a disaster.

But these gurus come out and make predictions nonetheless that are very likely to lose you money 99.9% of the time, based on my experience. So, how do we actually know what’s going to happen next year?

Well, we don’t know. But we can get some idea of what the markets are telling us. And when I look at companies based on asset values, one of the cheapest groups out there right now are the oil and gas infrastructure plays.

Renewable energy will be the fastest-growing source of energy generation for the next three decades, but it’s starting from a very low base and is not going to catch oil and gas until after 2050. That’s right… In 2050, the largest fuel source is still going to be oil and gas, primarily natural gas but oil is still going to play a role.

When you look at the forecasts from the Energy Information Administration, crude oil demand is probably going to flatline from here. But natural gas demand is going to continue to rise based on the need for electricity and for large-scale industrial use. Renewables do not have the ability to catch up between now and 2050.

So, that still leaves us with a glaring need to get oil and gas from point A to point B, from the production field to the end use customer, and that involves pipelines.

Plains All American Pipeline, L.P.

Right now, Plains All American Pipeline, L.P. (PAA) is one of the biggest pipeline companies out there, with 18,370 miles of crude oil and natural gas liquid pipelines in the United States.

They’ve also got a 35 million gallon capacity of tank storage, 815 trailers for transporting fuel, 75 million barrels of crude storage capacity and 68 billion cubic feet of natural gas storage capacity.

So, if you need to store it or move it, PAA can help you get oil and gas from point A to point B. And it’s stupid cheap! It’s only trading at 77% of the book value of the assets.

Now, here’s the thing… These are irreplaceable assets. Think of all the attempts in the last few years to build and pipeline that have been shut down by regulators and even Americans’ “not in my backyard” attitudes.

Most folks know we need the pipelines, but they don’t want to look at them every day or want them anywhere near their homes.

Pipelines are going to be tough to replace due to those regulations and the negative publicity surrounding them, so each pipeline already in place is going to be that much more valuable because it is pretty much irreplaceable.

The stock pays a 7.4% dividend, as the company is generating tons of cash flow. There’s $500 million left after paying the dividend, just from operating cash flow. But they’ve been selling non-core assets to the tune of about $1 billion so far this year.

And with that total $1.5 billion in free cash flow, they’ve done my three favorite things that you can do with free cash flow: They’re paying a dividend, they’re buying back a lot of stock and they are really reduces debt at a rapid pace.

Since Jan. 1, 2021, they have paid back a little over $1 billion of debt, and all of these things make the existing company that much more valuable to us as shareholders.

The assets alone are probably worth 40%-50% more than the market is currently valuing them at, and the long-term growth potential of the business is actually still really solid. There’s great total return potential here along with great income and long-term upside.

The market is telling you that this is way out of favor and super cheap, but when you look at the fundamentals of the business, they’re in great shape, getting better and they’re going to keep getting better over time. The dividend will likely be raised further, making this a great long-term investment.

The market is telling you that this is really cheap, and there’s a huge opportunity here.