The crisis in the Middle East resulting from the US and Israel’s war against Iran and its retaliation has led to the Strait of Hormuz becoming a point of contention. This tiny passage for sea-faring vessels off the coast of Iran is a choke point where around a fifth of global energy flows to and from its destinations.
As soon as things simmer down, energy prices will cool down, but it takes a moment’s notice for more oil price shocks to hit when tensions take a turn for the worse. Considering the significant impact on global economies, it is only a matter of time until a resolution to the conflict comes around. When such a time comes, the markets will likely hit new all-time highs to make up for all the lost time.
While nobody can guarantee how things will play out, I see a shift in the importance of the North American energy industry. I am bullish on Canadian energy stocks being more significant players in the overall industry. If I were to pick one stock to own to leverage this situation, it would be Enbridge Inc. (TSX: ENB).
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A good buy when oil is weak
Enbridge is an energy company boasting a $157.1 billion market capitalization. I think it is a fantastic stock to own, especially when weakness hits the energy market. As of this writing, Enbridge stock trades for $71.99 per share, down by roughly 6–7% from its all-time high.
After the red-hot start to the year, it is understandable for risk-averse investors to shy away from energy stocks. However, the pipeline segment transporting the crude oil and natural gas offers a different kind of exposure to the industry. Rather than relying on fluctuating commodity prices, Enbridge charges energy producers based on the volume it transports.
Since Enbridge and other pipeline companies offer a service transporting energy, an oil spike or dip doesn’t have a direct impact on its bottom line. Even if there is an industry-wide slump that pulls down Enbridge’s share price, I think it makes ENB stock a more attractive investment for long-term-focused investors.
Cash cow
Enbridge stock is a reliable dividend stock that has a multi-decade track record of hiking its quarterly payouts to investors. Considering that Enbridge has also started accumulating more businesses in the utility sector, the underlying business is securing predictable and more defensive revenue streams. These factors make its growing dividends even more attractive for investors seeking long-term holdings.
As Artificial Intelligence (AI) infrastructure proliferates, companies like Enbridge can serve companies with infrastructure critical for their operations and growth. The fact that Enbridge is also increasing its investments in the renewable energy sector means it is future-proofing itself for the energy transformation that might still be decades away. Renewables might not account for much right now, but they will be increasingly important as time passes.
Foolish takeaway
After its most recent uptick in share prices, Enbridge stock is trading above its historical trading range and hinting at new all-time highs. Some might argue that the current valuation means investors are paying a premium for owning the stock. I would not mind a pullback in the share price to scoop up more shares of the stock, but that does not mean I do not recommend investing in it right now.
If you already have a position in the stock, I would not shy away from increasing it a little bit. For those thinking of starting a position, it might be better to wait for a pullback closer to its historical average.
