Lower for longer is the current mantra of the energy master limited partnerships (MLPs), and most likely the rest of the sector as well. MLPs and midstreams were crushed in 2015, with the index down a stunning 37% as commodity prices tumbled, and the stress on producers jumped dramatically. Wise investors know that the solid companies can fight their way through to better days, but the question is on which horse to put one’s chips.
In a new report, the analysts at Deutsche Bank clearly lean toward the stronger players in the sector, those with wide footprints and solid balance sheets. So for at least the time being, they stick with the higher quality companies. They do see the potential for a bottom by the middle of the year, but in January that is in the distance, especially with oil closing in on $30.
Here are the four top picks to Buy now.
Enterprise Products Partners
This is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) once again, despite the energy slump, recently raised its distribution 1%. The company maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating against some of the wilder swings of the commodities that it trades in.
One reason many analysts may have a liking for this stock might be its distribution coverage ratio. That ratio is well above one times, making it relatively less risky among the MLPs. The company’s distributions have grown for several quarters and are expected to continue in 2016. Plus the Standard & Poor’s current rating is BBB+, which is investment grade, and the outlook is stable.
Enterprise Products Partners investors receive a 6.22% distribution. The Deutsche Bank price target on the stock is $30. The Thomson/First Call consensus price target is $33.82. Shares closed Wednesday at $25.09.
EQT Midstream Partners
This one comes in as a top midstream play now at Deutsche Bank. EQT Midstream Partners L.P. (NYSE: EQM) is a growth-oriented partnership formed by EQT Corp. to own, operate, acquire and develop midstream assets in the Appalachian Basin. EQT Midstream Partners provides midstream services to EQT and third-party companies through its strategically located transmission, storage and gathering systems that service the Marcellus and Utica regions. The partnership also owns 700 miles, and operates an additional 200 miles, of FERC-regulated interstate pipelines. It also owns more than 1,600 miles of high- and low-pressure gathering lines.
The stock had a secondary offering late last year that some thought was ill-timed and dilutive, especially since the stock was down about 15% at the time. The bottom line is that at least they were able to go to the capital markets for additional funding and should be set for the foreseeable future.
EQT Midstream Partners investors receive a 3.74% distribution. While Deutsche Bank has a $90 price target, the consensus target is higher at $93.42. Shares closed Wednesday at $72.25.