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Warren Buffett: Buy Enbridge (TSX:ENB) Stock?

Karen Thomas, MSc, CFA
·4 min read
question marks written reminders tickets
question marks written reminders tickets

Warren Buffett is famous for many things. Most interesting to me are his investing pearls of wisdom. For example, Warren Buffett has the following quote: “The business schools reward difficult behaviour more than simple behaviour, but simple behaviour is more effective.” Here at Motley Fool, many of us are believers in this. Let me explain while digging into Enbridge (TSX:ENB)(NYSE:ENB) stock.

I went to business school and learned a lot. In my days of working in money management, I also learned a lot. And this quote from Warren Buffett really does hit on one of my big lessons. For example, complex financial models look really good, and the analysts making them are really smart. But the problem is that these models are only as good as the assumptions that go into them. I have found that these assumptions are often riddled with problems. Isn’t there a better way to pick stocks? The bottom line is that a simpler way is usually better.

Without further ado, I would like to explore whether Warren Buffett would buy Enbridge (TSX:ENB)(NYSE:ENB) stock today. I would like to do this by looking at some basic information.

I think Warren Buffett would like Enbridge’s strong, consistent cash flows

Enbridge stock has been on a consistent downward trajectory in the last few years. Interestingly, Enbridge’s cash flow has been heading in the opposite direction — upward. This disconnect can be largely explained by investor sentiment. It is the feeling that oil and gas assets are heading to zero as renewable energy rises. So, investors seem to be pricing in a disaster scenario for Enbridge.

Enbridge stock Warren Buffett
Enbridge stock Warren Buffett

But is this realistic? I don’t think so. There are numerous studies that conclude that natural gas will be relevant for years to come. It will be, at the very least, the fuel to bridge the transition to renewable energy.

I know Warren Buffett likes natural gas pipelines

In the summer of 2020, Warren Buffett’s Berkshire Hathaway made a big move. Its $4 billion acquisition of the natural gas transmission and storage assets of Dominion Energy spoke volumes. It was a reflection of the opinion that natural gas is a fuel of the future. It was also a reflection of the fact that many natural gas assets were grossly undervalued.

Enbridge is also heavily involved in the natural gas industry. The company moves nearly 20% of the natural gas consumed in the U.S., and Enbridge operates North America’s third-largest natural gas utility. Furthermore, Enbridge stock is also undervalued. It’s suffering from negative industry sentiment. Enbridge stock doesn’t reflect its value.

Warren Buffett would certainly like Enbridge stock’s dividend yield

Enbridge stock is currently yielding 7.5%. That’s a really generous yield, especially for a defensive company like Enbridge. Sure, the company has its issues. But it remains an essential part of our energy grid in North America. Yes, the move to renewable energy is happening. However, this will take decades. In the meantime, Enbridge is providing essential energy. And in the long term, Enbridge will be part of the renewable energy solution. The company is already working hard on being part of the solution.

Motley Fool: The bottom line

One can learn many solid investing bits of advice from Warren Buffett. When I evaluate Enbridge stock, it seems clear to me that this is a stock that he would buy. I feel extremely confident recommending Enbridge for Motley Fool readers today.

The post Warren Buffett: Buy Enbridge (TSX:ENB) Stock? appeared first on The Motley Fool Canada.

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Fool contributor Karen Thomas owns shares of ENBRIDGE INC. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Enbridge. The Motley Fool recommends Dominion Energy, Inc and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).

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