Following the US Federal Reserve’s recent 50-basis point rate cut, investors are being urged to shift focus away from tech stocks and consider more stable sectors, according to SlateStone Wealth’s chief market strategist, Kenny Polcari.
In an interview with CNBC, Polcari described the rate reduction as a “crisis-level cut” and advised investors to look toward utilities, financials, consumer staples, and high-dividend energy stocks.
Among these, Polcari singled out Energy Transfer LP (NYSE: ET) as the “perfect stock” to own in the current market environment.
Energy Transfer stock: strong dividend appeal
Energy Transfer, a Texas-based midstream energy services company, has caught Polcari’s attention due to its solid performance and attractive dividend yield.
Despite missing revenue forecasts—reporting $20.73 billion against analysts’ expectations of $21.5 billion in its latest quarter—the company still saw a year-over-year revenue increase of over 13%.
Polcari remains bullish on the stock, particularly due to its impressive dividend yield of 7.90%, making it a standout choice for income-focused investors.
Polcari emphasized that Energy Transfer is “first class in its field,” citing its consistent performance and robust dividend payouts as key reasons to invest, especially as lower interest rates could further boost its appeal.
The Federal Reserve’s signaling of an additional 50-basis point rate cut by the end of 2024 is expected to benefit energy companies like Energy Transfer.
Lower interest rates typically stimulate economic growth, driving up energy demand.
Additionally, reduced borrowing costs will help companies like Energy Transfer manage debt more effectively and fund growth projects, enhancing its long-term prospects.
With lower rates, dividend-paying stocks like Energy Transfer may become even more attractive to income investors, as fixed-income alternatives offer less competitive yields.
Wells Fargo on Energy Transfer stock
Polcari’s positive outlook on Energy Transfer is echoed by Wells Fargo analysts, who recently raised their price target for the company to $19, suggesting an 18% upside from current levels.
This optimism stems from Energy Transfer’s improved EBITDA guidance, which was increased last month to reflect better-than-expected growth.
The company now projects its adjusted EBITDA for fiscal 2024 to be between $15.3 billion and $15.5 billion, up from the previous estimate of $15 billion to $15.3 billion.
Wells Fargo also noted Energy Transfer’s strategic $3.25 billion acquisition of WTG Midstream in May, further strengthening its position in the energy sector.
The stock currently trades at a five-year high, with a price-to-earnings ratio of 13.69, suggesting a favorable risk/reward balance, according to Wells Fargo analysts.
Energy Transfer has outperformed major energy companies like Chevron, Shell, and even Warren Buffett’s favorite, Occidental Petroleum, in recent months.
Other industry experts, such as Bryn Talkington, managing partner of Requisite Capital, have also expressed bullish sentiments about the stock, reinforcing its reputation as a strong investment in today’s market.
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