Investors hardly need to be reminded that the volatility has spiked dramatically in the market. Although the S&P 500 is faring much better than the Dow Jones Industrial Average and the Nasdaq, only one sector is up and that is the very defensive and conservative utilities sector. In a new research report, the Energy Infrastructure analysts at J.P. Morgan make the case that with commodity prices soaring, the high-yielding stocks that fall within their category are a solid bet in a very choppy market. Especially with bond yields dropping and the historical spread between master limited partnerships (MLPs) and the 10-year Treasury bond more inline with the historical 15-year average.
Here are the top high-yielding energy infrastructure MLP stocks that are rated Overweight at J.P. Morgan.
Crestwood Midstream Partners L.P. (NYSE: CMLP) is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage, transportation and terminalling of natural gas liquids (NGLs); and gathering, storage and terminalling of crude oil. The company recently announced a further expansion of its Willow Lake Project, located in the Permian Delaware Basin, which includes the conversion of a portion of its Las Animas natural gas gathering system into rich gas service and the construction of an initial cryogenic natural gas processing plant. Investors are paid a large 7.2% distribution. The J.P. Morgan price target is $27. The Thomson/First Call Wall Street estimate is at $25.45. The MLP closed Friday at $23.44. Investors should remember that MLP distributions may include return of principal.
Energy Transfer Partners L.P. (NYSE: ETP) is defying the market sell-off and trading within range of its 52-week high. The Federal Energy Regulatory Commission recently gave the company permission to build a pipeline from Texas to Mexico with a capacity of 140 million cubic feet per day of natural gas. The company is very focused on the Gulf Coast, making it a natural candidate to provide the pipeline hookups for liquid natural gas (LNG) export facilities. Energy Transfer Partners’ Lake Charles, La., LNG liquefaction project is already under development, with FERC construction approval expected by mid-2015. Investors are paid an outstanding 6.8% dividend. The J.P. Morgan price target is $60, and the consensus estimate is $60.18. The stock closed Friday at $55 a share.
NuStar Energy L.P. (NYSE: NS) is another stock flirting with 52-week highs and defying sellers. NuStar and other companies are building docks, storage tanks and other facilities in Corpus Christi to take advantage of the oil boom in the Eagle Ford shale formation 100 miles away. The port shipped out 350,000 barrels of crude a day in November, up from less than 10,000 at the start of 2012, according to port data. The stock offers shareholders an outstanding 7.9% distribution. J.P. Morgan has a $60 price target, and the consensus target is $54.88. NuStar closed trading on Friday at $54.81.
Regency Energy Partners L.P. (NYSE: RGP) is a midstream operator of natural gas pipelines, gathering systems and processing facilities. Regency’s midstream services are spread out across the country and are focused on some of the highest-producing natural gas regions of the country, including the Marcellus and Haynesville shales. Investors are paid a very nice 7% distribution. The J.P. Morgan price target is $32, and the consensus is at $29.33. Regency closed Friday at $26.55.
Williams Partners L.P. (NYSE: WPZ) wraps up the five high-yielding energy infrastructure stocks at J.P. Morgan and was also named a core MLP holding at Citigroup last week. The company focuses on connecting North America’s hydrocarbon resource plays to growing markets for natural gas and natural gas liquids. It operates in Northeast G&P, Atlantic-Gulf, West, and NGL & Petchem Services segments. Investors are paid a very nice 7% distribution. The J.P. Morgan price target is $57, while the consensus target is $54.15 Williams closed Friday at $51.85.
One thing that all these stocks have in common is every one closed the day up on Friday when the rest of the market was down big. Plus, they are the companies that move the product around and are nowhere near as exposed to the actual commodity price shifts as exploration and production companies are. While they are not dirt cheap on a valuation basis, investors who scale some capital in now may be in great shape to buy more should they back up a little in price.