ONEOK, Inc. (OKE): A Bull Case Theory

We came across a bullish thesis on ONEOK, Inc. on Pacific Northwest Edge’s Substack by David. In this article, we will summarize the bulls’ thesis on OKE. ONEOK, Inc.'s share was trading at $69.57 as of October 13th. OKE’s trailing and forward P/E were 14.13 and 11.95 respectively according to Yahoo Finance.

Oneok (OKE) is a U.S.-based midstream energy company that operates as a critical intermediary in the energy supply chain, gathering, processing, transporting, and storing natural gas, natural gas liquids (NGLs), crude oil, and refined products. Its business model is built around long-term, fixed-fee contracts, providing stable cash flows and insulating the company from commodity price volatility. OKE’s largest segment is NGLs, which processes raw NGL mixtures into ethane, propane, and butane for industrial customers. Despite its strategic importance, this segment has the lowest operating margin at around 18%, constrained by domestic pricing and input costs.

The refined products and crude oil segment, established through the Magellan Midstream acquisition, transports and stores fuels across key production regions like the Permian Basin to the Gulf Coast and Great Lakes. This segment is heavily regulated, costly to replicate, and commands margins near 40%, highlighting a wide-moat business. Oneok has further strengthened its network through acquisitions of EnLink and Medallion, integrating additional natural gas and crude gathering operations and ensuring consistent demand to LNG export facilities.

The company’s scale, extensive pipeline network, and capital-intensive infrastructure create significant barriers to entry, providing durable advantages. While OKE’s balance sheet includes substantial debt, its operations generate strong free cash flow, a long history of dividend growth, and a current dividend yield near 6%, compensating investors while they wait for potential stock appreciation.

With steady performance in a volatile energy sector, ongoing infrastructure projects, and export-oriented growth, OKE represents a stable, cash-generative business. Although the author personally sold shares due to limited conviction in the complex midstream sector, OKE’s operational resilience, moat, and long-term free cash flow generation make it an attractive candidate for investors seeking income and stability.

Previously we covered a bullish thesis on Kinder Morgan, Inc. (KMI) by Gregg Jahnke in October 2024, which highlighted the company’s project backlog growth driven by AI-related advancements and U.S. manufacturing reshoring. The stock has appreciated approximately 10.19% since our coverage, reflecting strong infrastructure demand. David shares a similar perspective but emphasizes Oneok’s stable midstream operations, wide-moat assets, and reliable free cash flow.

ONEOK, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 44 hedge fund portfolios held OKE at the end of the second quarter which was 42 in the previous quarter. While we acknowledge the potential of OKE as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.