Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Streetwise

News and analysis on Bay Street and the world of finance
available exclusively to subscribers of Globe Unlimited

Entry archive:

Oil pipelines feed into storage tanks at the Enbridge Cushing Terminal in Oklahoma. (SHANE BEVEL/BLOOMBERG NEWS/SHANE BEVEL/BLOOMBERG NEWS)
Oil pipelines feed into storage tanks at the Enbridge Cushing Terminal in Oklahoma. (SHANE BEVEL/BLOOMBERG NEWS/SHANE BEVEL/BLOOMBERG NEWS)

Pipeline stocks look quite pricey after wild run Add to ...

In case you haven’t noticed, pipeline stocks have gone on an incredible run this year. While the S&P/TSX Composite Index is down 11 per cent since January 1, pipeline stocks are up about 30 per cent on average, driven by a thirst for yield.

Demand from investors has been so heavy that Enbridge Inc. , which operates largest network of pipelines, now trades at price-earnings multiple of 28 times. That’s 40 per cent higher than its 5-year median P/E ratio of about 20 times. And last week, Pembina Pipeline Corp. traded around 16 times forward cash flow, which is a very expensive for this metric.

More related to this story

The skyrocketing sector caught the attention of Doug Rowat, who puts out research and strategy notes for Raymond James. His main point: can these valuations be supported?

“While we believe pipeline stocks should be core holdings in client portfolios, even core holdings should occasionally be trimmed,” he suggested in a note to clients. “For investors looking to take some profits on pipelines and take on more risk, a rotation into other areas of the energy sector (pipelines are energy stocks) may be prudent.”

Not exactly a dire warning to exit the sector, but something to chew on nonetheless. Should markets rebound anytime soon, investors may flee these names in search of growth stocks.

Follow on Twitter: @timkiladze

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories