West Texas Intermediate crude is once again trying to knock on the door of $60 a barrel, and with less than three weeks left in the 2017 trading year, many investors have turned their attention to 2018 and the energy sector. While numerous strategists make the case that tax reform and other positives are not priced into current earnings and growth expectations, one thing is for sure. Despite the solid rise in crude oil, and a continuation of the OPEC production cuts, the energy sector, especially the master limited partnerships (MLPs) continue to underperform.
With a large number of positives providing a tailwind for the energy sector in 2018, we decided to screen the UBS MLP universe for stocks that paid solid distributions, were rated Buy and were on the firm’s Most Preferred list. We found five that look like great plays for 2018.
Enterprise Products Partners
This is one of the largest MLPs 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 $1.69 per unit on an annualized basis.
Investors are paid a very solid 6.63% distribution. The UBS price target for the shares is $34, and the Wall Street consensus target is $31.83. The stock closed Monday’s trading at $25.49 a share.
Energy Transfer Partners
This company merged with Sunoco Logistics Partners last year. Energy Transfer Partners L.P. (NYSE: ETP) engages in the natural gas midstream and intrastate transportation and storage businesses in the United States.
The company’s Intrastate Transportation and Storage segment transports natural gas from various natural gas producing areas, and through ET fuel system and HPL system. It owns and operates 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. Its Interstate Transportation and Storage segment provides natural gas transportation and storage services; owns and operates approximately 12,300 miles of interstate natural gas pipeline; and has interests in various natural gas pipelines.
The Midstream segment gathers, compresses, treats, blends, processes and markets natural gas. It owns and operates 35,000 miles of in service natural gas, 31 natural gas processing plants, 21 natural gas treating facilities and four natural gas conditioning facilities.
Energy Transfer Partners unitholders receive a massive 12.93% distribution. UBS has a $24 price target, while the posted consensus target is $26. The shares closed most recently at $16.61.