In a recent interview with the Wall Street Transcript, Rick Buoncore, a Hall of Fame portfolio manager, has targeted midstream transportation and infrastructure as a sweet spot in today’s equity markets.
TWST: So do you think this provides opportunities for investors in the energy sector?
Mr. Buoncore: I think it does, but I think you need to be very, very careful. I’ll give you an example. Today, Warren Buffett was on CNBC, and from an economic point of view, he looks at the rail loading reports every week, specifically looking at coal, and he mentioned that coal had increased — of any item that’s being transported by rail over the last six months or so. And the reason for that is natural gas has gone up to around $3.30, in that range, from in the $2.20 range last year. Well, the utilities can switch back and forth between natural gas and coal based upon the value of the commodity. So you could be playing natural gas and the switch is made when it gets too high, the price will come down. So the commodity is a very tough thing to invest in.
So our view on that is, if you believe that we’re going to drill, and we believe there’s going to be volume, then we like these midstream companies that transport the oil and gas from location A to location B under long-term contracts, and those are referred to as energy midstream companies. We think they offer tremendous value, and while you’re waiting for that value to accrue, you’re also getting a very nice dividend, close to 5% or 6%. And that dividend is growing steadily. So all said and done, that might be the best and most efficient and safest way to play the energy rebound.
And you did mention our administration, and I applaud our administration for trying to actually make us energy-independent because there’s no one single thing that will get us there. We need to do a whole array of things, but we should certainly be drilling and creating jobs on our own lands and encouraging that in the United States, as well as using every other alternative source of energy because it’s going to require all of that for us to be energy-independent.