Compared to other income type equities, like utilities and real estate investment trusts (REITs), the master limited partnerships (MLPs) have been absolutely demolished. In fact, the Alerian index that tracks MLPs has underperformed the utilities and REITs by an incredible 17% and 19%, respectively, this year, and it also trails the overall energy sector by 5.5%.
A new report from Deutsche Bank says that this perfect storm of bad news has driven the MLPs down to levels that are now the most compelling since the huge sell-offs of 2008. While the firm is still cautious, and not ready to go for a rating of Overweight, it does have three best new money ideas for investors to consider now.
Energy Transfer Partners
This stock has been mauled and is offering investors a top quality distribution. Energy Transfer Partners L.P. (NYSE: ETP) currently owns and operates approximately 35,000 miles of natural gas and natural gas liquids pipelines. It also owns 100% of Panhandle Eastern Pipe Line Company (the successor of Southern Union Company) and a 70% interest in Lone Star NGL, a joint venture that owns and operates natural gas liquids storage, fractionation and transportation assets.
Sunoco, an affiliate of the company, recently purchased eight Pico convenience stores in South Central Texas. Sunoco is the MLP that mainly supplies motor fuel to independent dealers, stores, distributors and commercial customers. Apart from its distribution business, the partnership also involves in the operation of retail fuel units and 150 convenience stores.
Energy Transfer Partners sits almost 35% off its peak, and while it is trading at a substantial yield, with high single-digit distribution growth the next few years makes this company very undervalued.
Energy Transfer shareholders are paid an outstanding 9% distribution. The Deutsche Bank price target for the stock is $67. The Thomson/Reuters consensus target is lower at $70.50. Shares closed Monday at $46.02.