Summertime always means one thing in the United States: summer vacation. This year is profoundly different around the nation due to the COVID-19 pandemic. Many Americans are afraid to get on an airplane, and with good reason given what we have experienced over the past six months. That lack of flying is adding up to a ton of driving.
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In a new research report, Jefferies has seen the numbers that American car drivers are putting up, especially with the price of gasoline still very reasonable in most states. The firm feels that there is some outstanding opportunity for investors looking to take advantage of the travel discrepancies and differences this summer. They noted this in the report:
Demand for gasoline has steadily rebounded, and meaningfully accelerated in recent weeks as states have reopened, vacationers have taken to the highways, and travelers have displayed a preference for driving vs. flying; in the Energy Information Agency’s last reading, gasoline demand was down just 6% year-over-year We adjust our forecasts for better expected second quarter operating rates, weaker cracks & muted capture; however, our second half market structure (demand-driven operating rate improvement checked by distillate inventory) is unchanged and supported by EIA data. Following sharp share price declines from June highs and with improving cracks, demand, and inventories, we upgrade four companies to Buy.
All four of the following stocks make sense for those looking for energy exposure but who remain wary of exploration and production companies.
Holly Energy Partners
This limited partnership owned by HollyFrontier, and it is a solid dividend play. Holly Energy Partners L.P. (NYSE: HEP) owns and operates petroleum product and crude pipelines, storage tanks, distribution terminals, loading rack facilities and refinery processing units that support the refining and marketing operations of HollyFrontier in West Texas, New Mexico, Utah, Nevada, Oklahoma, Wyoming, Kansas, Arizona, Idaho and Washington.
The company’s refined product pipelines transport conventional gasolines, reformulated gasolines and low-octane gasolines for oxygenate blending, as well as distillates, such as high- and low-sulfur diesel and jet fuels and liquefied petroleum gases. Its intermediate product pipelines transport intermediate feedstocks and crude oils; and its oil trunk, gathering and connection pipelines deliver crude oil.
Holly operates 26 main pipelines; crude gathering networks; 10 refined product terminals; a crude terminal; 31,800 track feet of rail storage; seven locations with truck or rail racks; and tankages at six refining facility locations, as well as five refinery processing units.
Holders of Holly Energy Partners stock receive an outstanding 10.46% distribution, which appears safe for now. The Jefferies analysts have a $17 price target on the shares, which compares with a higher $18 Wall Street consensus target, as well as Monday’s close at $13.38 per share.
Phillips 66
This extremely diversified energy company has a long and successful operating history. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its master limited partnership, Phillips 66 Partners.
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