Energy Business

Credit Suisse's 5 Top Energy MLPs to Buy Now as They Rally Back

Everything got hit hard during the recent sell-off, but the energy master limited partnerships (MLPs) got the double whammy of market selling combined with energy prices plunging. After a strong two years, some of the top companies in the segment were down almost 20%, a huge decline for relatively safe, income producing sector. A new report from the MLP team at Credit Suisse notes that while it is too early to take a victory lap, given the speed and strength of the bounce from the lows of last week, the Alerian MLP index is sitting just about 5% from the August 29 peak.

The Credit Suisse analysts note that while markets are still nervous, and there could be volatility, a retracement back down 10% to 15% seems unlikely. They highlight five companies rated Overweight to buy now that should continue to do well even if oil breaks the $80 level. Investors should remember that MLP distributions may contain return of principal.

Kinder Morgan Inc. (NYSE: KMI) is a top MLP pick at Credit Suisse and is also one of the most recommended MLPs on Wall Street. The company recently announced will acquire all of Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners in a series of transactions. The merger plan is comprised of $40 billion in parent-company equity, $4 billion in cash and $27 billion in assumed debt. It is a move some shareholders are opposed to, but one many on Wall Street see as a brilliant move.

Kinder Morgan unitholders are paid a solid 4.55% distribution. The Credit Suisse price target for the iconic industry giant is $49, and the Thomson/First Call consensus target was unavailable. Kinder Morgan closed Thursday at $38.68.

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Tallgrass Energy Partners L.P. (NYSE: TEP) provides natural gas transportation and storage services for customers in the Rocky Mountain and Midwest regions of the United States through its Tallgrass Interstate Gas Transmission and Trailblazer Pipeline systems. The company provides processing services for customers in Wyoming through Tallgrass Midstream at the Casper and Douglas natural gas processing and at the West Frenchie Draw natural gas treating facilities. Tallgrass also provides water business services to customers through BNN Water Solutions.

Tallgrass investors are paid a 3.8% distribution. The Credit Suisse price target is $53 and the consensus target is $51.08. The company closed trading Thursday at $42.93.

Targa Resources Corp. (NYSE: TRGP) just announced that its board of directors has declared a quarterly cash dividend of $0.7325 per share, or $2.93 per common share on an annualized basis, for the third quarter 2014. The approved dividend represents an increase of approximately 6% over the previous quarter’s dividend and 29% over the dividend for the third quarter 2013. The company owns a 2% general partner interest (which the company holds through its 100% ownership interest in the general partner of the partnership), all of the outstanding incentive distribution rights and a portion of the outstanding limited partner interests in Targa Resources Partners L.P.

Targa investors are paid a 2.1% distribution. The Credit Suisse price target is $165, and the consensus is posted at $143.93. Targa closed Thursday at $126.19.

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NiSource Inc. (NYSE: NI) provides natural gas transmission, storage and distribution, as well as electric generation, transmission and distribution. NiSource operating companies deliver energy to 3.8 million customers located within the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England. The utility aspect makes the stock a good choice for conservative investors.

NiSource investors are paid a 2.52% distribution. Credit Suisse has a $50 price target, while the consensus target is $44.29. The stock ended trading at $41.28.

Williams Companies Inc. (NYSE: WMB) is one of the leading energy infrastructure companies in North America and is a member of the Credit Suisse focus list. It owns controlling interests in both Williams Partners L.P. and Access Midstream Partners L.P. through its ownership of 100% of the general partner of each partnership. Additionally, Williams owns approximately 66% and 50% of the limited partner units of Williams Partners L.P. and Access Midstream Partners, respectively. This provides investors with diversity in strategy and location that some other companies do not.

Investors are paid a very respectable 4.2% distribution. The Credit Suisse price target is $70, and the consensus was not available. Williams closed trading on Thursday at $53.10.

ALSO READ: J.P. Morgan Energy Stocks to Buy If $80 a Barrel Oil Is Here for Good

The recent huge rally was reassuring to shell-shocked investors. With volatile headline risk still out there, these top MLPs make good sense for more conservative portfolios.