Why Plains All American Pipeline, L.P. Could Be a Gold Mine for Value Investors

Plains All American Pipeline (NYSE: PAA) has gotten pummeled during the oil market downturn. Units are down more than 60% in the last three years, including losing a third of their value this year alone. The culprit is that the oil pipeline company had too much direct exposure to commodity prices, which has cut into its cash flow and weakened its balance sheet. While the company has attempted several stop-gap measures to address its issues, it recently ripped off the Band-Aid by significantly reducing its distribution to investors, which will leave it with more cash flow for debt reduction.

This deleveraging has the potential to lift the weight of debt that has been holding down the company's valuation. However, that's only part of the story because its earnings have significant upside potential once the oil market gets back on its feet. Consequently, Plains All American Pipeline could be a gold mine for value investors given that it's selling for a dirt-cheap valuation when considering its earnings capacity.

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Source: Fool.com