It’s becoming increasingly clear that the attempt by OPEC and the Russians to slow production has started to hit a wall, and with compliance at a six-month low in June, and American shale producers still operating at full speed, the black gold may be range bound. That said, energy is the only S&P sector that was down in the first half of 2017, so the value is enticing. The question is where to put investment chips now?
One outstanding area to pick may be the top energy master limited partnerships (MLPs), as while oil pricing is important, overall usage is as well. In a new research report, UBS thinks the second quarter may end up being the trough for the sector, and capital expenditure restraints put in as oil plunged through the last half of 2015 and early 2016 are surely helping now.
These five companies are among the firm’s most preferred stocks to own now, and all of them are rated Buy at UBS.
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 like the stock might be its distribution coverage ratio. The company’s distribution coverage ratio is well above one times, making it a relatively less risky MLP. The distributions have grown for several quarters, and last quarter Enterprise Products Partners announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.42 per common unit, or $1.68 per unit on an annualized basis.
Enterprise Products Partners investors are paid a very solid 6.12% distribution. The UBS price target for the stock is $36, and the Wall Street consensus target is set at $32.73. The stock traded early Tuesday at $27.55 a share.
DCP Midstream Partners
This high-yielding company makes sense for accounts looking for income. DCP Midstream Partners L.P. (NYSE: DPM) is primarily engaged in natural gas gathering, processing, transportation and marketing, as well as transportation and marketing of natural gas liquids (NGLs) and wholesale distribution of propane in the northeastern and midwestern United States.
In January 2017, the company and its general partner, DCP Midstream LLC, announced a transaction combining all of the assets and debt at both entities. The transaction created one of the largest natural gas gathering and processing MLPs in the United States.
Investors in DCP Midstream Partners are paid an outstanding 9.04% distribution. UBS has $45 price target for the stock, and the posted consensus price objected is $40.36. The shares traded early Tuesday at $37.60.