Byte # 19 – Beyond the Magnificent 7: Why Energy Deserves Your Attention
Hello my Friends,
Time for today’s Byte! While I was away last week, I have been reflecting on opportunities in today’s lofty market.
Much of the spotlight has been on Technology, Artificial Intelligence, and the Magnificent 7. But beyond that, Energy remains a sector that still offers value, diversification, and yield for your portfolio.
Take a look at the chart below comparing Year-to-date performance of Energy Stocks (XLE - The Energy Select Sector SPDR® Fund ETF) vs S&P 500 (IVV - iShares Core S&P 500 ETF)
Energy’s lagging performance this year has been largely due to:
Falling Oil prices : Global oil prices have declined significantly from mid-2025 levels, with Brent crude forecasted to fall from around $66 per barrel today to $58 by Q4 2025, and further to about $50 in early 2026. This decline is due to OPEC+ increasing production, causing global inventory builds and pressure on prices.
Rising Oil Inventories : Higher supply has led to larger stockpiles, creating supply-demand imbalances expected to persist into 2026.
Production Dynamics : U.S. crude production is at record highs but may taper off in 2026 as producers pull back drilling in response to weaker prices.
Within Energy, I prefer midstream companies—the ones transporting crude oil, natural gas, and refined products. Their revenues are less tied to commodity prices and more to the volume of oil and gas flowing through pipelines. These companies often operate under long-term fee-based contracts, which support recurring cash flows and attractive dividends. That said, margins can still feel modest effects from commodity price swings depending on contract structures.
Here are two midstream ideas worth exploring for the long run:
1. MPLX LP Partnership Units (MPLX) - MPLX, formed by Marathon Petroleum in 2012, operates a large network of midstream energy infrastructure: 10,000+ miles of pipelines, 62 terminals, nearly 9 Bcf/day of gas processing capacity, and significant fractionation and storage assets.
Investment Case: Stable fee-based cash flows combined with a growth pipeline of projects and acquisitions. The recent $2.375B Northwind Midstream deal expanded MPLX’s Permian Basin footprint.
Financials: Strong coverage (1.5x) and leverage (~3.1x), consistent dividend history, and a yield above 7%. Growth in EBITDA and cash flow supports ongoing shareholder returns.
Consideration: MPLX issues K-1 tax forms, which can complicate filings unless held in a tax-advantaged account like an IRA or HSA.
In summary: MPLX offers an attractive mix of income and growth, underpinned by diversified assets and a resilient fee-based model.
2. OneOk (OKE) - A diversified mid-stream provider operating in four main segments: Natural Gas Gathering and Processing, Natural Gas Liquids, Natural Gas Pipelines, and Refined Products and Crude. ONEOK's extensive infrastructure includes approximately 60,000 miles of pipelines, encompassing gathering, processing, fractionation, transportation, storage, and marine export services. The company's operations are primarily located in key regions such as the Mid-Continent, Permian Basin, Gulf Coast, and Rocky Mountain areas. It currently yields ~5.6%.
Acquisitions: Strategic purchases of Magellan, EnLink, and Medallion expanded its footprint and assets at favorable valuations
Growth Projects: Expanding NGL pipelines and fractionation capacity through 2027, while positioning for LNG export opportunities via Permian-to-Mexico gas pipelines.
Financial Strategy: Targeting leverage reduction to 3.5x by 2027, supporting 4–6% dividend growth and stronger credit metrics
Diversification: Its move into refined products and crude oil assets adds stability and widens its economic moat, with regulated interstate pipelines creating high barriers to entry.
Business Model: Over 90% fee-based cash flows provide resilience across commodity cycles.
In summary: ONEOK combines strategic diversification, disciplined growth, and strong shareholder returns—all without the K-1 tax complexities.
I leave you here with these two ideas – as always, do your homework, understand the businesses you’re investing in, and then let your money grow.
I hope this Byte gave you something to think about. If you have any questions, feel free to reach out!
Your Investment Buddy,
Pooja
