Enbridge Inc (TSX: ENB)(NYSE: ENB) has been making some modest gains this year, with the stock up nearly 20% in 2019. However, those increases were primarily in the early part of the year, as in the past three months, the stock has climbed just 3%. Concerns about pipelines and the general lack of support the industry has made investors very hesitant to invest in oil and gas stocks like Enbridge.
However, amid the news last week that B.C. won’t be able to limit the flow of oil from Alberta, it’s an important victory for the Trans Mountain pipeline and the oil and gas industry. The two provinces have been at odds over the pipeline for a long time, and the issue may still not be resolved, as there will likely be a further appeal to the Supreme Court of Canada. B.C.’s position was rejected by the courts as the National Energy Board (NEB) is entrusted with approving interprovincial pipelines.
Had B.C. been successful, it would have undermined the NEB’s ability to approve projects, potentially setting a dangerous precedent for an industry that’s already had plenty of challenges in getting pipelines approved.
However, investors will likely therefore want to wait for confirmation from the Supreme Court that this issue is finally resolved before making any big buys. There’s been a lot of unpredictability over the past few years amid the politics surrounding pipelines, and it’s understandable that there hasn’t been a lot of excitement just yet.
Could this be the catalyst behind a big rally for Enbridge?
Enbridge could be a big benefactor of the decision (assuming it’s upheld) as the stock has been undervalued for some time, especially given the strong numbers it’s been producing lately. It’s been over two years since Enbridge’s stock has been over $55 a share, and if the Trans Mountain finally gets going, it could be what’s finally needed to get the share price back up there.
Unfortunately, even though a company may be doing all that it can and producing sales and profit growth, it’s sometimes not enough if the industry overall has a lot of question marks surrounding it. And that’s what we’re seeing with oil and gas stocks, as many great companies have struggled to attract investors over concerns that growth will be limited, particularly in Canada, where there hasn’t been much reason to get excited in the industry.
Oil prices and politics have weighed heavily on the industry’s top stocks, but now that we might see some stability on both fronts, it could be what finally brings investors back. It may take a while to happen, but the good news for investors that are willing to wait is that they can earn a great dividend from Enbridge by doing so.
Even during the downturn, over the past five years, we’ve only seen Enbridge’s share price briefly fall below $40. Despite the industry’s challenges, there’s not a big risk in investing in Enbridge today.
