Elections have consequences. The results this time will likely have a profound impact on investors. The trick following every election is deciding what consequences are worth betting on. Kinder Morgan Inc. (KMI) and TC Energy Corp. (TRP), for instance, are set to expand contracted pipelines serving growing LNG exports, observes Roger Conrad, editor of Conrad’s Utility Investor.
Unfortunately, betting on election consequences can be a losers’ game for many investors. Take energy, a campaign “issue” in 2016, 2020, and again this year. In each campaign, presidential candidates professed very different views on what American energy policy should be. Yet, their eventual actions didn’t affect investor returns in the slightest.
For example, the first Trump Administration presided over a rapid decline in US coal-fired power generation. Oil and gas was by far the worst-performing S&P 500 stock sector, losing around half its value in the four years. And “green” stocks were among the best performers.
KMI and TRP (YTD % Change)
Data by YCharts
Conversely, Joe Biden’s term has been marked by record US oil and gas production. The top-performing sector by far has been conventional energy stocks, including more than a few coal miners. And the worst has been renewable energy, with the string of bankruptcies extending to former rooftop solar leader SunPower Corp. this summer.
This isn’t to say the Trump and Biden administrations didn’t try to influence the energy industry. And it’s certain the second Trump administration will this time around. But cut through the deafening media messaging and this past week’s stock market volatility and it becomes clear government action only affects the economy and investment markets to a point. And it’s critical investors not to go beyond that when making bets.
For now, the easiest actions for the new administration will be what the president can do unilaterally. And that’s unfreezing permitting for new oil and gas production on federal lands, as well as for LNG export licenses and infrastructure.
A reduced regulatory burden would cut costs for US producers over time. But no company will boost output unless commodity prices are supportive. And the big takeaway from Q3 earnings and guidance is shale discipline is strong as ever. That means more free cash flow for share buybacks, dividends, and debt reduction.
Production gains will come from more efficient drilling and acquisitions, rather than greenfield development. Expanding the LNG trade, in contrast, is a way to boost output and profitability without undermining prices. And re-opening permitting is a way the second Trump administration will have an immediate positive impact on energy investor returns.
Both KMI and TRP are securing deals to provide natural gas to serve AI-enhanced data centers, also a likely priority of the new administration.
Recommended Action: Buy KMI and TRP.
