With the new decade off and running, and the stock market trading at some of the highest levels ever from a metrics standpoint, the search for relative value is on. One of the areas that may hold the most value is the energy master limited partnerships (MLPs), a group that sputtered badly in 2019. Despite a solid fourth-quarter rally, the NYSE Alerian MLP index is still down 6.5% over the past 12 months, compared too double-digit gains for all the major indices.
While still out of favor, the top energy MLPs may hold not only good upside value and potential but also may be the ticket for dependable income for investors with sticker shock over what many income investments pay now. In a new research report, Raymond James has a fourth-quarter earnings preview that highlights the firm’s top stocks to buy. The report noted this when discussing the state of the sector now:
Equities were bifurcated in both the fourth quarter of 2019 (weakness through Thanksgiving, followed by a healthy rebound) and early first quarter 2020 (geopolitical ebbs and flows). The group still trades at a high single-digit historical Enterprise Value/EBITDA discount and a large historical yield discount, opportunities still exist. Moreover, we see 2020 updates as a platform for management teams to acknowledge now well-known/ understood investor concerns. While defensive in 2020, steady execution could set up for a more optimistic 2021.
We screened the Raymond James MLP coverage universe for the companies rated Strong Buy. We then screened for the highest yielding and found four that may be outstanding additions for 2020 and beyond.
Crestwood Equity Partners
This perhaps lesser known company has big upside to the Raymond James price target. Crestwood Equity Partners L.P. (NYSE: CEQP) provides infrastructure solutions to liquids-rich natural gas and crude oil shale plays in the United States. It operates through three segments.
The Gathering and Processing segment offers gathering and transportation services for natural gas, crude oil and produced water, as well as processing, treating and compression services.
The Storage and Transportation segment provides crude oil and natural gas storage and transportation services to producers, utilities and other customers. The Marketing, Supply and Logistics segment offers natural gas liquid (NGL) and crude oil storage, as well as marketing and transportation services to producers, refiners, marketers and other customers.
Crestwood Equity Partners investors receive a solid 7.6% distribution. Raymond James has a tall $42 price target on the stock, and that compares to the lower consensus target on Wall Street of $40.25. The shares were last seen trading on Wednesday at $32.79, up over 2% on the day.
The top MLP is a very safe way for investors looking for energy exposure and income. Energy Transfer L.P. (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all the major domestic production basins.
The company is a publicly traded limited partnership with core operations that include complimentary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, NGLs and refined product transportation and terminaling assets; NGL fractionation; and various acquisition and marketing assets.