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Should Investors Take Advantage of Enbridge Stock’s Low Price?

Key Points
Enbridge is one of the world’s largest pipeline operators, involved in the transportation and storage of crude oil, natural gas, and liquids in the U.S. and Canada.
Enbridge recently announced a $14 billion deal to acquire three U.S. natural gas distribution utilities from Dominion Energy.
Enbridge is a dividend aristocrat and currently trades at a 14% discount to its year-to-date price with a 7.84% annual dividend yield.
Here are five stocks that we believe are better investments than Enbridge.

Enbridge Inc. (NYSE: ENB), based in Canada, operates the longest crude oil and liquids transportation system in the world, with a total of 17,809 miles of active pipeline. While Enbridge also has core businesses in natural gas pipelines, gas utilities, storage, and renewable energy, its liquids pipeline business contributes 57% of its total revenues.

On September 5, 2023, Enbridge announced a $14 billion deal with Dominion Energy Inc. (NYSE: D) to acquire three U.S. utilities. This deal, comprising $9.4 billion in cash and $4.6 billion in debt assumption, caused Enbridge’s share price to drop by 7% after the announcement, reaching a new 52-week low. Some investors may view this price drop as an opportunity, considering the stock’s low valuation of 15.9 times forward earnings and a high annual dividend yield of 7.84%.

The Energy Transportation Business
Enbridge is a significant player in the U.S. energy market, operating the longest pipeline in the world with 9,299 miles in the U.S. and 8,510 miles in Canada, totaling 17,809 miles in North America. Its gas transmission and midstream business contribute 29% of the company’s revenues, transporting 4.3 billion barrels of crude oil in 2022.

Enbridge’s pipelines transport nearly 30% of the crude oil produced in the U.S. and 40% of the crude oil imported by the country. In 2022, the company generated over $39 billion in revenues, and this is projected to decrease to around $34.85 billion in 2023.

Enbridge has a strong track record as a dividend aristocrat, having paid dividends for more than 67 years and raised dividends consecutively for 28 times. However, it is worth noting that the stock currently has a short interest of 4.38%, which likely increased after the recent announcement.

The New Leader in U.S. Natural Gas
The acquisition of three U.S. natural gas distribution utilities will make Enbridge the largest provider of natural gas in the United States. The company will transport over 20% of the natural gas consumed in the country, which will help diversify its energy mix.

The growing population demands both sustainable and affordable energy options. Natural gas satisfies these demands to a certain extent, although it still releases methane and carbon dioxide, albeit in lesser amounts compared to burning fossil fuels. New York has taken a pioneering stance by banning natural gas stoves and heating in most new buildings and homes starting in 2026. With the acquisition, Enbridge will expand its presence in North Carolina, Ohio, and Utah.

Natural Gas and Methane Controversy
While natural gas burns cleaner than fossil fuels, it still releases methane, which is considered a potent greenhouse gas. Methane has a global warming effect that is 21 times greater than carbon dioxide over a century, although it dissipates more quickly. Natural gas typically contains 70% to 90% methane.

Analyst Actions
Following the announcement of the acquisition deal, Wells Fargo downgraded Enbridge shares to “Equal Weight” from “Overweight.” Analyst Praneeth Satish mentioned concerns about high leverage and funding gap headwinds in 2024, despite the reasonable asset price paid. The price target was lowered from $42.51 (C$58) to $36.65 (C$50). BMO Markets also resumed coverage of Enbridge with a “Market Perform” rating.

Weekly Ascending Triangle
Enbridge stock has been following a weekly descending triangle pattern since reaching its peak at $43.91 in June 2022. The shares fell to a low of $32.76 in October 2022. However, Enbridge recently experienced a breakout through the $35.63 trigger level, reaching $39.96 before retracing. Each subsequent pullback and bounce formed a lower high, creating a diagonal descending trendline within the triangle pattern. The stock is currently approaching the flat-bottom support line.

As an investor considering Enbridge, it’s important to be aware of the latest recommendations from top analysts. While Enbridge currently has a “Hold” rating, there are other stocks that may offer better investment opportunities.

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