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Pipeline stocks are making a comeback, Cramer says

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As Goldman Sachs upgraded Williams Companies to “buy” Wednesday, Jim Cramer says pipelines may be back in vogue.

“The pipeline stocks are making a comeback,” Cramer said on “Squawk on the Street” Wednesday. “This is amazing.”

Analysts at Goldman cited visible gas pipeline growth, valuation, M&A, and a dividend cut that’s priced in. The Goldman team has a 12-month price target of $25, aiming for a 14 percent return potential.

“We believe WMB shares present a compelling opportunity given strong fundamentals and relatively inexpensive valuation,” the note said.

Williams, an Oklahoma-based oil and gas pipeline, is set to cut its dividend in half by the second quarter in 2016, the note said. Goldman recommended investors “buy on any weakness following a cut.”

“We believe a dividend reset can improve its balance sheet and financial flexibility,” the note said. “At a 12 percent yield, we believe a cut is more than priced in.”

Cramer said the idea that you buy something ahead of a dividend cut is “rather startling but that’s what they’re recommending.”

Kinder Morgan is another potential comeback kid.

Shares of the pipeline operator spiked Monday as it sold a 50 percent stake in its southeastern natural gas pipeline system to Southern for $1.47 billion. The company’s stock is up more than 6.5 percent this week and 25 percent year to date.

The overall market, Cramer said, is due for some flatness after record highs on the S&P this week.

“You can’t be as bullish as you are after this rally,” he said.

He compared the current hot streak for equities to a baseball team winning ten games straight.

“It’s absolutely true that they could win the eleventh,” Cramer said. “But they might be due for a little flatness.”


Tags: oil, gas, natural gas, pipeline


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