Show BUSINESS end and the STOCK MARKET by BABSON'S REPORTS INC Copyright 1971 NATURAL GAS PIPELINES ATTRACTIVE Despite some recent firming prices of many leading natural gas transmission stocks ar are still at levels that arc are attractive attractive at at- for investors who are in need of a reasonable current income from their investments and who also seek some appreciation of their capital by byway byway byway way of a defensive type of commitment This group of stocks is associated with the capital industries which are especially especially especially sensitive to high costs of borrowed capital As a result natural gas pipeline pipe line stocks have been on the defensive for most of the 1971 first half hall Moreover Moreover More More- Moreover over interest in this sector of the stock market has been dampened by somewhat somewhat somewhat some some- what disappointing profits publicity regarding regarding regarding re re- re- re garding the possible tightening of safety regulations covering the industry and anda a continuing net reduction in reserves of natural gas Inadequate Profits For many years the natural gas pipeline pipeline pipe pipe- line industry has been forced to wage protracted battles to secure an adequate return on invested capital Company profit pro fit margins have suffered from the limiting of rate structures to levels well below those desired Income has also been squeezed by the process of applying apply apply- ing for upward rate adjustments which is a costly matter Even after long and tedious hearings often spanning a number number number num num- ber of years final decrees have permitted permit permit- ted new rates considerably below those sought Fortunately the industry does havethe havethe have havethe the advantage of a relatively low labor cost factor Nevertheless the inflationary inflation inflation- ary trend of wages and fringe benefits throughout the entire economy has been powerful enough to have some impact on the gas gas transmission companies Even more important the rising tide of prices for construction materials equipment and purchased gas has prevented profits profits pro pro- fits from chalking up advances commensurate com com- commensurate with the growth of revenues Dilemma Confronts Industry A prime selling point for natural gas gasIs gasis gasis is its cleanliness in comparison with oil and coal The concern over air pollution pollution pol lution has resulted in a greater demand for natural gas from industrial and residential residential res res- fuel consumers At the same time the resultant fillip in demand Corgas for Cor forgas forgas gas at the wellhead on sales involving rated rate of expansion of transmission trans mission facilities has come at a time when term long-term money rates are arc high and the increase in demand for natural gas has far outpaced uncommitted reserves reserves re reo re- re serves senes of this fuel In addition companies are faced with the high costs of exploring for Cor and developing developing de de- new sources of natural gas particularly in relation to the same process pro cess in prolific production areas in other parts of the world The low prices for forgas forgas forgas gas at the wellhead on sales involving interstate operations have made the supply demand imbalance for the industry indus try even more acute Relief Appears Likely The key to the problem of inadequate natural gas reserves is ore equitable pricing at the wellhead This would spur the exploration It H is encouraging to note that the Federal Power Commission Commis sion has been more realistic in rate setting and readier to speed up the process Net result should be beneficial to the natural gas pipeline firms many of which have their own reserves As additional ad sources become available these companies can speed up expansion of the gas market In the meantime the industry in is trying to narrow the supply deficiency by importing liquefied natural gas Investment Possibilities The research staff of Babson's abson's Reports now favors the common stock of companies com corn such as Tenneco Northern Natural Natural Na tural Ga Ga Panhandle Pipe Ipe Line Line and Colorado Interstate for a of income and potential capital appreciation ap ap- The yield low common stock of Florida Gas is suited for growth growth- oriented investment portfolios |