Plain and simple, the energy sector has been a nightmare for investors over the past seven months. Obviously, demand and supply is an issue, but some analysts estimate that as much as 30% of the overall decline is tied to momentum speculators shorting oil futures. A new report from J.P. Morgan’s Energy/MLP team points out that despite declining commodity prices that led to a fourth quarter meltdown, master limited partnerships clawed out a 5% total return in 2014, much better than the S&P energy -8% total return.
While a huge contrarian play for investors, energy demand will not slow forever, and speculators will have to cover shorts at some point. A mid-week huge jump in oil pricing may suggest they are close. With yields on U.S. Treasury debt at all-time lows, income investors looking among the rubble of the top MLPs may have the chance of a lifetime. The J.P. Morgan plan is to stick with defensive natural gas names and the top blue chips in the arena. Here are six top MLPs to buy now for investors that can stand some volatility in a growth and income portfolio. All are rated Outperform at J.P. Morgan. Remember, MLP distributions may include return of principal.
Blue Chip MLPs
Enterprise Products Partners L.P. (NYSE: EPD) certainly fits the blue chip mold, and it is a top MLP to buy at J.P. Morgan. The company is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products and petrochemicals. The company recently announced the 42nd consecutive quarterly distribution increase, to $0.37 per common unit, or $1.48 per unit on an annualized basis.
Enterprise investors are paid a 4.3% distribution. The J.P. Morgan price target for the company is $42. The Thomson/First Call consensus target is just higher at $42.95. Enterprise closed on Wednesday at $32.45.
Kinder Morgan Inc. (NYSE: KMI) is another core blue chip MLP pick at J.P. Morgan, and it is also one of the most recommended on Wall Street. The company announced in the fall the acquisition of all of Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners in a series of transactions. The merger plan was 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 saw as a brilliant move that could reshape the industry.
Kinder Morgan unit-holders are paid a solid 4.2% distribution. The J.P. Morgan price target for the iconic industry giant is $47, and the consensus target is $46.36. Kinder Morgan closed Wednesday at $41.22.