Credit Suisse Lists the Best MLPs to Buy: Cheniere, Williams and More
A strong stock market has the oil and gas master limited partnerships (MLPs) on fire in 2013, which already offer high dividends or distributions as income and return of capital. MLPs underperformed the broad market last year. Now we have investors getting a catch-up trade, with MLPs delivering 22.6% in total returns year-to-date, as measured by the market-cap weighted Alerian MLP index and by the JPMorgan Alerian MLP Index ETN (NYSEMKT: AMJ), compared to 17.9% for the S&P 500. The MLP research team at Credit Suisse is attending the National Association of Publicly Traded Partnerships (NAPTP) investor conference this week. The firm has issued its list of MLP stocks to buy for income investors.
Investors need to understand that MLPs are technically “units” rather than shares, as these are partnership interests rather than shares of stock. The largest MLP conference of the year is on tap, and the mood is expected to be considerably more festive this year than last year. Fundamentals remain strong, particularly in the oil production area, though pipeline additions are contributing to falling basis. Natural gas liquids (NGL) production continues also to surprise to the upside, especially in the Marcellus and Utica shale plays.
Here are Credit Suisse’s top MLPs to buy now for the next 12 months.
Williams Companies Inc. (NYSE: WMB) is the top stock to buy at Credit Suisse. The company’s strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins and increase in stock price during the past year. The Credit Suisse price target for the stock is $49. The Thomson/First Call estimate is $40.50. Shareholders receive a 3.60% distribution. Remember, MLP distributions can contain return of principal.
QR Energy L.P. (NYSE: QRE) may be a stock to buy for yield-hungry investors. QR Energy recently has expanded into the Permian Basin, and it now makes up 35% of production and proved reserves. Credit Suisse has a $20 price target, and the consensus is at $20 as well. Investors are paid a whopping 11.20% distribution.
Cheniere Energy Inc. (NYSEMKT: LNG) is the operator of the coveted Sabine Pass LNG terminal and is the leader in the export of the product. Credit Suisse has a $38 price target, but the consensus target is much lower at $32. The company does not pay a distribution.
Targa Resources Corp. (NYSE: TRGP) recently completed a $625 million senior note offering to reduce current borrowing costs. Credit Suisse has an $82 target on this top name. The consensus is much lower at $73. Shareholders are paid a 2.90% distribution.
Cheniere Energy Partners L.P. (NYSEMKT: CQP) is a subsidiary of Cheniere Energy. This is the Cheniere entity that actually owns and operates the Sabine Pass LNG terminal. Credit Suisse has a $31 target for the stock. The consensus is $26, which is below its current trading level. Shareholders are paid a solid 6.00% distribution.
Crosstex Energy L.P. (NASDAQ: XTEX) engages in gathering, transmission, processing and marketing natural gas, natural gas liquids (NGLs) and crude oil primarily in the north Louisiana, north Texas and Ohio River Valley. Credit Suisse has a $22 price objective, while the consensus is at $21. Shareholders receive a very nice 6.40% distribution.
Access Midstream Partners L.P. (NYSE: ACMP) is one of the MLP names to buy. The company has established a large-scale position in all the key unconventional basins in the United States. Credit Suisse’s $46 price target is right in line with the consensus target. Investors are paid a 4.30% distribution.
Genesis Energy L.P. (NYSE: GEL) announced it will expand its existing rail terminal in Natchez, Miss., designed to handle straight and minimally diluted bitumen delivered by the Canadian National Railway, and construct a new unit train loading facility in the heart of the Powder River Basin of the Niobrara Shale Play. Credit Suisse has posted a $53 price target. The consensus is at $51. Investors are paid a 3.80% distribution.
The Credit Suisse team has stressed and continues to emphasize a more defensive posture, and they are focusing their attention on large, relatively liquid, investment grade MLPs or affiliates with exposure to the coming crude oil production boom in North America. Given the solid run by MLP names so far this year, that advice makes good sense for investors.