Is Energy Transfer LP (ET) the Best Hot Oil Stock to Buy According to Hedge Funds?

Energy Transfer LP (ET) has been a subject of interest for hedge funds, with 25 of them holding long positions in the stock at the end of the first quarter. However, the sentiment has remained flat compared to the previous quarter and a year ago, indicating a lack of enthusiasm from the investment community. This article explores the reasons behind this sentiment and whether ET is indeed the best hot oil stock to buy according to hedge funds.



Earnings and Financial Performance

ET reported a 3Q24 beat and suggested generating FY24 adj EBITDA above the high-end of its guidance range, which could have attracted some investors. However, the flat hedge fund sentiment indicates that this positive news was not enough to entice more hedge funds to increase their positions. This suggests that hedge funds are looking for more compelling reasons to invest in ET.

Mergers and Acquisitions

ET announced its acquisition of Midland G&P operator WTG Midstream for ~$3.25bn, which is a strategic move that could benefit the company in the long run. However, this acquisition may also have raised concerns about increased capital expenditure (capex) and the potential delay in unit repurchases. The higher capex outlook may push out the timeline for unit repurchases, which could be a deterrent for hedge funds focused on shareholder returns.

Strategic Opportunities and Growth

ET possesses similar or greater exposure to the data center / AI / power demand theme than Midstream competitors and is betting on slightly refocusing its long-term outlook to help its equity valuation. This strategic shift could attract investors looking for growth opportunities in the AI sector. However, the flat sentiment suggests that not enough hedge funds are convinced by this strategy yet.

Capital Expenditure

Higher capex outlook may push out unit repurchase timelines, which could be a concern for investors focused on shareholder returns. This increased spending on capital projects may be a factor contributing to the flat hedge fund sentiment towards ET.

Legal and Regulatory Risks

The fatality involved in the incident could lead to additional scrutiny and a criminal investigation, possibly delaying the repair and restart process. This operational risk may be deterring some hedge funds from increasing their positions in ET.

Operational Risks

A prolonged shutdown of the pipeline could cause a bottleneck in ET's system back to the Permian, which could negatively impact the company's operations and financial performance. This operational risk may also be contributing to the flat hedge fund sentiment towards ET.



In conclusion, the recent flat hedge fund sentiment towards Energy Transfer LP (ET) can be attributed to a combination of factors, including earnings performance, strategic acquisitions, growth opportunities, capital expenditure concerns, legal and regulatory risks, and operational risks. While some positive developments may have attracted some investors, the overall sentiment remains flat, indicating that hedge funds are not yet convinced by ET's prospects. Income-oriented investors should weigh the potential risks and rewards of investing in ET based on their individual risk tolerance and investment goals.