Energy Stocks: 2 to Buy and 1 to Avoid in June

Energy is a highly cyclical sector, often going through swift and dramatic price spikes and declines. Today oil prices are high and investors are excited about energy stocks. That means if you are buying an energy stock today you need to think about what happens when the next downturn comes. Here are two energy names you might want to buy and one that you should be worried about.

North American midstream giant Enbridge (NYSE: ENB) owns a portfolio of oil and natural gas pipelines. Combined they make up 84% of the company's earnings before interest, taxes, depreciation, and amortization (EBITDA). These assets are largely fee based, so Enbridge is paid for the use of its pipelines and the often volatile price of the commodities it transports aren't all that important to it. As such, its cash flows tend to be fairly resilient to energy price swings.

In addition to that, the company also operates a natural gas utility (12% of EBITDA). This business is also fee based, but benefits from government regulation that puts it even further outside the energy industry's ups and downs. But the real star today is the 4% of EBITDA that comes from the company's clean energy investments. That 4% is tiny today, but the company is investing heavily in this business line because the world is shifting toward a cleaner future. It is, basically, changing with the times using the strong cash flows from its carbon businesses to fund the effort.

Source Fool.com