Energy Trades Still Hot

Posted: Nov 25, 2011 12:01 AM

ONEOK Inc. (OKE, $79.56) is a Fortune 500 integrated natural gas company based in Oklahoma, and servicing Kansas, Oklahoma and Texas.  Sales in FY2010 were $13.0 billion, and profits were $334 million, about the same as in 2009 and 2008. The company derives income from utility distribution, energy services, and ONEOK Partners, L.P. (OKS, $49.11).

Morgan Stanley raised its rating on ONEOK to Overweight and raised its price target to $93.00 on 11/15/11. “With impressive growth coming from the Bakken and Mid-Continent, we see a multi-year story of 15-20% dividend growth combined with a free cash flow yield reaching 11.8% in 2014,” said Morgan Stanley. “…OKE will generate substantial excess free cash flow that could be made available for acquisitions, additional investment in OKS, dividend increases, or share repurchases ($300m purchased in 2011, with $450m authorization remaining through 2013).”

Projected consensus earnings (EPS) growth is 5%, 13% and 13% for fiscal years 2011 through 2013.  ONEOK’s 2012 price earnings ratio (PE) is 21.6.

ONEOK’s stock pays a dividend of $2.24 per share, with a yield is 2.85%.  Dividends have been paid since 1939.  75% of the stock is owned by institutions, and the S&P credit rating is BBB.

ONEOK Stock Chart

ONEOK Stock Chart by YCharts

The top position in GW Capital’s mutual funds is ONEOK Inc.  These funds focus on undervalued stocks. Read more here.

ONEOK shares recovered from the 2008 Financial Meltdown by early 2010, traded in a previously-established trading range until December 2010, then broke out to establish a new trading range in 2011 of  $64 to $76.

The stock is showing signs of breaking out on the upside, yet again. As a growth or growth & income investor, I wouldn’t hesitate to buy at the current price.  

If I were a trader, I’d put in a buy at $74, and if I were lucky enough to get the stock at that price, I’d use stop losses to protect my profits while the stock rose and established its next trading range.

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Readers should consult their investment and tax advisors to determine suitability, risk and taxation.