At the core, the math appears to be “mathing” for Plains All American Pipeline (PAA), as the kids like to say. Structured as a master limited partnership (MLP), Plains All American engages in the pipeline transportation, terminaling, storage and gathering of crude oil and natural gas liquids (NGL) in the U.S. and Canada. As a midstream specialist, PAA stock inherently commands significant relevance. Still, with cynically favorable tailwinds abounding, it could be a top-tier play.
Certainly, the market has been eyeballing the enterprise. Since the beginning of the year, PAA stock has gained almost 15% of equity value. Over the trailing 52 weeks, it’s up nearly 42%. Assessing the broader fundamentals, the energy specialist could rise even higher. It may be as easy as one, two, three.
First, PAA stock benefits from a key geopolitical dynamic. Without getting bogged down into the details, Russia’s military aggression in Ukraine shows no sign of abating. That has caused tough statements to be issued by western allies, particularly the U.K. and France. Most notably, French President Emmanuel Macron has ratcheted up the pressure, implying that his nation could choose to send troops to Ukraine.
Of course, with Russia being a major energy exporter, the current conflict could easily raise hydrocarbon demand. Theoretically, this would be positive for PAA stock.
Second, electric vehicle demand has noticeably declined, sending pure-play EV manufacturers into red ink. Further, a sector-wide price war emphasizes a key underlying concern: consumers don’t want to make the electric transition just yet. With contemporary infrastructure still geared toward combustion-powered vehicles, making the transition would be extremely difficult, particularly for households with modest means.
Third, domestic politics shine brightly on PAA stock. Simply put, President Joe Biden is unpopular. More than likely, this year’s election will be a slugfest. In other words, the Democrats must attract as many votes as possible. That means they can’t adopt a hardline approach with the hydrocarbon industry.
Options traders appear to be picking up on these catalysts, making Plains All American an enticing opportunity.
PAA Stock Sees Huge Jump in Options Activity
Following the end of the March 28 session (with Wall Street closed for Good Friday), PAA stock represented one of the top highlights in Barchart’s screener for unusual stock options volume. This is an important indicator that shows where the smart money is investing its resources.
Total volume reached 60,380 contracts against open interest of 117,968 contracts. Thursday’s volume represented a 1,334.2% increase over the trailing-month average metric. Notably, call volume hit 59,920 contracts versus put volume of only 460. Therefore, the put/call volume ratio sat at 0.01, indicating on paper extreme bullishness.
To be sure, investors can also choose to sell call options, which may be a bearish bet that the security will not rise above the listed strike price. To get a better read on the sentiment, investors can refer to Barchart’s options flow screener, which exclusively filters for big block transactions likely placed by institutions. Here, options with bullish sentiment far outnumbered derivatives with bearish sentiment.
Frankly, it’s not surprising that the smart money has decided to buy call options rather than sell them. For one thing, PAA stock is on a roll. More importantly, the fundamentals make much sense. You have both domestic and global political forces moving in a cynically favorable direction for the hydrocarbon industry. As well, EV demand is falling, which is a plus for fossil fuels.
Another matter to consider is that the technical dynamics are also favorable. On Thursday, PAA stock closed at $17.56. Barchart’s Trader’s Cheat Sheet – which lists important support and resistance levels – shows significant technical barriers from $17.67 to $17.99.
It’s possible, then, that PAA stock could enter a temporary consolidation phase. Eventually, though, the bulls will likely attack these resistance levels since they’re so stacked together and they’re near a nice round number of $18, presenting a psychological incentive.
Even more importantly, the $19.94 level is where PAA stock enjoyed previous support. So, the bulls will probably be looking to take out the $20 mark, presenting a near-term opportunity for speculators.
It’s Not Just the Technicals Either
While the technical performance of PAA stock is in the spotlight, investors should also consider the financial print. Specifically, its earnings performances so far have been impressive.
Last fiscal year, Plains All American beat its quarterly consensus targets for earnings per share – and it wasn’t really close. Overall, the average positive earnings surprise came out to 16.55%. The best performance came in the third quarter, when the company posted EPS of 35 cents against an expected print of 26 cents.
For fiscal year 2024, analysts believe EPS will land at $1.35 on revenue of $51.49 billion. However, given the prior performance and the favorable fundamentals, the high-side estimates – EPS of $1.85 on revenue of $59.13 billion – could be realistic. Either way, investors will want to keep close tabs on PAA stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
