New Trade for December 9th, 2020

Markets are optimistic this morning with the Dow set to add to yesterday’s record close.  Is Wall Street gearing for another leg up, or are we treading in froth?  It’s only possible to make sense of the stock market in hindsight, which is why our research team is committed to providing timely and relevant information.

One unusual factor in the stock market in 2020 has been the rise of “Goldilocks” midcap stocks that are neither too big nor too small to succeed in an ever-changing environment.  The Russell 2000 index (RUT) of midsize U.S. corporations tailed its sixth record close of 2020 right after Thanksgiving. Topping off a 15% surge since Election Day.  But even more impressive is how the midcap index has diverged from the S&P 500 (SPX) over a slightly longer horizon; the Russell 2000 is up about 18% since Sept. 1 while large-cap S&P is only up about 4%.

Mid-caps offer a 1-2 punch of financial stability you don’t get from small caps, but also greater growth potential than many large caps.  And in 2021, as growth (hopefully) returns, mid-caps should offer a great deal of rebound potential.

Magellan Midstream Partners LP (MMP) specializes in the transportation, storage and distribution of crude oil and petroleum products.  While many investors might be leery of buying energy stocks right now given the volatility in oil prices or long-term concerns about carbon emissions and climate change, this mid-cap stock offers significant peace of mind as a “midstream” infrastructure play.  

While oilfield service stocks are primarily concerned with drilling and extracting fossil fuels from the earth, MMP operates pipelines that transport gasoline, aviation fuels, and liquified gases to end users that include refiners, wholesalers, biofuel producers, and even railroads and airports that are transporting those commodities even further down the supply chain.  Magellan’s assets include a 9,800-mile refined products pipeline system with 54 storage terminals, and another 2,200 miles of crude oil pipelines and storage facilities with a capacity of 37 million barrels. 

With scale like this, it’s easy to see the appeal of this master limited partnership (MLP) as a key infrastructure provider.  MMP sports a 9.17% dividend yield and currently trades with a trailing twelve month P/E ratio of 10.50.  There are currently 9 Strong Buy, 3 Moderate Buy and 4 Hold ratings for the stock, resulting in a consensus rating of Buy.


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