(Photo Illustration by Piotr Swat/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
ONEOK (OKE) is a major U.S. midstream operator, moving and processing natural gas liquids through a large, fee-based pipeline network that delivers steady cash flow. Despite its scale and stability, the stock hasn’t kept pace, creating a potential disconnect between performance and valuation.
We believe that OKE stock could represent a strong value buy. Currently, it is trading below average valuation and shows reasonable revenue growth along with strong margins relative to its modest valuation.
Investing in stocks that are undervalued or trading significantly below their peak prices while still maintaining robust margins enables investors to take advantage of mean reversion and re-evaluation potential. The risk of loss may be lower because businesses with high margins are capable of sustaining earnings and rebounding more quickly when market conditions or sentiment improve.
What Is Happening With OKE
OKE is down -27% so far this year, but it is now 38% less expensive based on its P/S (Price-to-Sales) ratio compared to one year ago, and it also has a P/E (Price-to-Earnings) ratio that is below the S&P 500 median.
The stock may not currently show it, but there are positive developments for the company. ONEOK’s fee-based business model supports stable cash flow, enhanced by nearly $500 million in synergies from acquisitions year-to-date. Recent volume increases in Rocky Mountain and Mid-Continent NGL and natural gas throughput indicate operational strength, and with new projects like the Bighorn plant and Eiger Express pipeline ready to enhance capacity and boost future revenue. Although analysts project slower revenue growth and management has moderated its outlook for 2026 due to commodity prices, recent Q3 results surpassed expectations. The ongoing valuation discount primarily springs from previous “uninspiring results” and elevated capital expenditures related to the integration of acquisitions.
OKE Has Strong Fundamentals
- Reasonable Revenue Growth: 58.4% LTM and a 16.4% average over the last 3 years.
- Strong Margin: Nearly 21.2% average operating margin over 3 years.
- No Major Margin Shock: ONEOK has successfully avoided any significant margin collapse in the last 12 months.
- Modest Valuation: Despite positive fundamentals, OKE stock trades at a PE multiple of 13.1.
Here is a brief comparison of OKE fundamentals with S&P medians.
But What Is The Risk Involved?
Although OKE stock might represent an intriguing investment opportunity, it’s always prudent to consider a stock’s historical performance during downturns. OKE dropped 42% during the Dot-Com Bubble, 65% in the Global Financial Crisis, and experienced a 29% decline during the 2018 Correction. The Covid Pandemic was even more severe, resulting in an 80% plunge, while the Inflation Shock caused a nearly 30% decrease. Therefore, despite having strong fundamentals, OKE is not invulnerable when market conditions deteriorate. The risk remains tangible during times of panic. However, risk is not confined to significant market crashes. Stocks can decline even amid favorable market conditions—consider events such as earnings reports, business updates, and changes in outlook. Check OKE Dip Buyer Analyses to examine how the stock has rebounded from sharp declines in the past.
For further details and our perspective, see Buy or Sell OKE Stock.
Stocks Like OKE
Not ready to make a move on OKE? Consider these alternatives:
We selected these stocks based on the following criteria:
- Market cap greater than $2 billion
- Significantly below the 1-year high
- Current P/S less than the average of the last few years
- Strong operating margin
- P/E ratio below the S&P 500 median
A portfolio of stocks that meets these criteria would have performed as follows since 12/31/2016:
- Average forward returns of 12.7% over 6 months and 25.8% over 12 months
- Win rate (percentage of selections generating positive returns) exceeding 70% for both 6-month and 12-month periods
- Strategy consistent across various market cycles
A Multi-Asset Portfolio Provides Safer, Smarter Growth
Individual stocks can perform exceptionally well or poorly, but a multi-asset strategy stabilizes the investment experience. A diversified portfolio captures upside potential while mitigating losses from any single market.
The asset allocation framework from Trefis’ Boston-based wealth management partner achieved positive returns during the 2008-09 downturn when the S&P declined by more than 40%. Our partner’s strategy now includes Trefis High Quality Portfolio, which has consistently outperformed its benchmark, covering all three indices – S&P 500, S&P mid-cap, and Russell 2000.