According to the U.S. Department of Energy, propane is the third most common transportation fuel in the world behind gas and diesel. It's also used for home heating, cooking, hot water heating, clothes drying, and to power gas fireplaces. However, almost half of propane is used for making plastic, and a large chunk runs machinery, cuts metal, and produces materials.
U.S. propane stock levels are lower than normal
S&P Global says that total U.S. propane supplies are low at the end of the annual summer build season compared to five-year averages. The inventory shortage is coinciding with colder weather, which increases propane demand due to its heating capabilities.
In the week ending Sept. 24, propane levels reached 72.9 million barrels, which is only 71.5 percent of the highest level during the summer build last year.
"The combination of robust exports and static production levels suppressed propane stocks throughout the summer, a trend that continued unabated into September and undergirded speculation among market insiders that a winter inventory shortage was inevitable," reporter MK Bower says.
Shortages can create investment opportunities. Here are some of the publicly traded propane companies to watch.
Energy Transfer LP (ET) is on the rise
Energy Transfer LP (NYSE:ET) produces natural gas and transports propane pipelines. ET stock has seen a 7.86 percent increase in market value since Oct. 6. That rise amounts to 16.32 percent in the last month.
A key risk for ET stock is its long-term viability. The shares are up at an impressive rate of 66.48 percent YTD. However, the company is still down more than 16 percent since before the market crash in February 2020 due to the COVID-19 pandemic.
On the plus side, ET is still trading well below its 50-day moving average, which means that this growth could gain even more momentum.
Suburban Propane Partners (SPH) has a positive performance outlook.
Suburban Propane Partners (NYSE:SPH) is an electric power distribution company with a long-standing stock. Its values have fluctuated dramatically over the decades, but it's an interesting stock to look at from a briefer time horizon.
SPH is up 2.81 percent this week and 6.56 percent over the last month. The stock has just started to recover on the upside after an early 2021 downfall.
Analysts say that the performance outlook for SPH is up in the short, mid, and long term (with time horizons ranging from two weeks to nine months or more).
UGI Corp. (UGI) is big propane in a nutshell.
UGI Corporation (NYSE:UGI) owns AmeriGas—the biggest retail propane distributor. UGI is up 2.49 percent this week, 6.05 percent over the last month, and 30 percent YTD. UGI has proven long-term capital gains as well.
Wells Fargo analysts initiated UGI coverage on Oct. 20 and Barclays analysts raised their target price. Meanwhile, Bank of America and Zacks Investment Research both upped UGI stock to a buy.