Oneok is Tuesday's IBD Stock Of The Day as the natural-gas pipeline and processing company capitalizes on growing demand for exports that has helped send natural gas prices to 14-year highs. OKE stock broke above a buy point in Monday stock market action and edged lower Tuesday, despite an 8% drop in natural gas futures prices.
The Tulsa, Okla., company, whose infrastructure manages more than 10% of U.S. natural gas production, is a recent addition to IBD's SwingTrader portfolio.
On Monday, the Henry Hub natural-gas futures price hit the highest level since September 2008, topping $8 per million British thermal units. That's more than double the year-end price. The surge has come amid cool spring weather on top of strong demand for exports as U.S. allies hope to wean themselves from Russian natural gas.
Futures prices backslid to just above $7 per million Btu. Still, the favorable demand backdrop is what matters for Oneok stock, much more than volatile natural gas prices.
Why Oil Prices Matter For Oneok Stock
Roughly 90% of Oneok's business is fee-based, so natural gas prices aren't a direct driver of results. "We have escalators on many of our natural gas liquids and gathering and processing contracts. These are typically tied to either CPI or PPI indexes and provide protection from rising costs," CFO Walt Hulse explained on the March 1 fourth-quarter earnings call.
Those escalators should "keep pace or exceed inflationary costs," he said.
Oneok pays more attention to crude oil prices and based its 2022 guidance on a price-per-barrel in the low $70 range. With crude oil now around $103 a barrel, that's bullish for OKE stock.
In Oneok's Midwestern base — the Rocky Mountain, Mid-Continent and Permian regions — natural gas is generally a byproduct of shale oil production. If demand for oil puts more rigs in play, Oneok is called on for natural gas gathering, processing and transporting.
The centrality of oil prices might change to the extent demand for natural gas exports becomes a driver. The White House has said the U.S. will ship an extra 15 billion cubic meters of natural gas to Europe this year.
OKE Stock
Oneok stock dipped 0.5% to 72.17 Tuesday. That puts OKE stock just below a 72.47 buy point.
OKE stock has etched out a tight pattern over the past four weeks, which is highlighted on a weekly chart in MarketSmith. The tight pattern means the weekly close is no more than 1.5% above or below the prior week's close. Throughout the period, Oneok stock has found support at its 21-day line and remains less than 3% above that key technical level.
That tight pattern reflects investors with sure hands, no matter the broad market volatility. That's backed up by OKE stock's relative strength line. The blue line in the charts provided that tracks a stock's progress vs. the S&P 500 is at a two-year high.
The tight pattern comes modestly above a prior consolidation cleared last month.
Big Dividend
In its March corporate presentation, Oneok noted that it is among the 14 companies in the S&P 500 with a dividend yield of greater than 5%. The company paid out $3.74 in dividends per share last year.
Oneok has said that near-term infrastructure projects will boost capacity at relatively low cost and generate attractive returns.
