2 Energy Stocks to Buy in April

Energy Transfer units are up >15% YTD (MLP ~+3% over 12 months) and offer a ~7% distribution yield with ~90% of earnings fee-based and planned distribution growth of 3–5% annually backed by secured expansion projects through the end of the decade. Oneok is up >20% YTD (down ~10% over 12 months), yields ~4.7%, expects 85–90% fee-based earnings in 2026, has acquisitions and projects completing by mid-2028, and targets 3–4% annual dividend increases. Both firms are presented as lower-risk, fee-oriented energy exposures amid uncertainty from the war with Iran, implying defensive positioning if crude prices reverse.

Analysis

Volatility from a geopolitical shock is creating transient opportunities inside the midstream complex that are not correlated 1:1 with crude. In the short run (days–weeks) backhaul and storage spreads tend to widen, lifting incremental fee revenue for connectors, storage owners, and export feeders even if crude direction reverses; over months, routing inefficiencies and higher insurance/shipping rates can create durable regional basis dislocations that favor assets with flexible takeaway and export optionality.

Key fragilities sit off the headline: pipeline cashflows are exposed to counterparty credit and project execution risk. A rapid E&P retrenchment (capex cuts within 3–9 months after a crude shock) can cause a lagged decline in volumes and pressure on coverage ratios, while continued higher-for-longer rates will raise the all-in cost of funding new capacity and increase dilution risk for growth-funded expansions. Watch covenant metrics and DCF/coverage thresholds — moves below ~1.1–1.2 historically force equity raises or distribution resets.

The market has likely priced in directionality of oil more than differential structural optionality within midstream. That creates a relative-value wedge between issuer structures (MLP vs corporate), ownership of export/intrastate optionality, and retail-tax frictions that create persistent discounts. Retail-driven selling of K-1 products can depress valuation multiples independent of fundamental coverage, presenting asymmetric opportunity if management executes on low-risk project hooks and keeps leverage metrics intact.

Key Decisions for Investors

• Core long (ET): Accumulate ET common up to 2.5% NAV on painful flow days (>7% drop in 10 trading sessions) or when ET trades 150–250bps wide vs a 5-name midstream basket. Target 30–40% total return over 18–36 months (distributions + rerating). Hard stop: reduce to zero if consolidated DCF coverage <1.1 or consolidated debt/EBITDA >4.5x.
• Pair trade (relative value): Go long ET / short OKE equal-dollar (1–2% NAV total) for 12–24 months to capture structural valuation/structural optionality spread (expect ET outperformance if retail/K-1 discount reverts). Unwind if spread z-score exceeds ±2.5 or if macro moves cause >20% correlated move across both names.
• Options hedge/speculative: Buy ET Jan 2028 LEAP calls using up to 1.0% NAV (choose 20–30% OTM strikes for convexity). This caps capital at risk (premium) while participating in upside should project execution/volume optionality re-rate. If oil drops >25% quickly, offset by buying short-dated USO puts (notional up to 1% NAV) to protect near-term commodity downside.
• Commodity-hedge pair: Short a 2–3 name levered E&P mini-basket (PXD, DVN style) sized to 0.75–1.0% NAV versus the ET long to profit if crude collapses while midstream cashflows hold. Take profits if E&P rally forces basis normalization or if coverage metrics on midstream deteriorate materially.