Energy
Credit Suisse's 4 MLPs to Buy for 2015 as Oil Tumble Continues
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As oil continues to tumble, prices are now hitting the lowest levels in five years. While it has been a devastating sell-off in the benchmark pricing, many of the energy master limited partnerships (MLPs) are in far better shape to survive the downturn than exploration and production companies.
A new report from John Edwards and the MLP research team at Credit Suisse stays very positive on the general partner stocks for 2015, and they have a preference for other sector leaders. After a strong snapback from the summer sell-off, MLPs have sold off a huge 10.2% from that peak to within 2.5% of the last trough. MLPs now are sitting 12.5% below the all-time high set in late August of this year.
With the market sentiment very negative, the Credit Suisse team is still focusing on the top companies in the sector. Here are four recommended stocks to buy. We remind readers that MLP distributions may contain return of principal.
Energy Transfer Equity L.P. (NYSE: ETE) saw a director step up to the plate recently and make a gigantic insider purchase. Kelcy Warren bought a total of 1,178,567 shares of the company stock at prices ranging from $49.01 to $53.55. The company 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.
Energy Transfer Equity unit-holders are paid a 2.9% distribution. The Credit Suisse price target is $79. The Thomson/First Call consensus target is $78. Shares closed Friday at $57.13.
ALSO READ: Deutsche Bank Lowers Price Targets on Top Oil Stocks to Buy
Kinder Morgan Inc. (NYSE: KMI) is another top MLP pick at Credit Suisse, and it is also one of the most recommended in the industry on Wall Street. The company announced in the fall the acquisition of all of Kinder Morgan Energy Partners, Kinder Morgan Management and El Paso Pipeline Partners in a series of transactions. The merger plan was comprised of $40 billion in parent-company equity, $4 billion in cash and $27 billion in assumed debt. It is a move some shareholders are opposed to, but one many on Wall Street see as brilliant.
Kinder Morgan unit-holders are paid a solid 4.30% distribution. The Credit Suisse price target for the iconic industry giant is $49, and the consensus target is $44.38. Kinder Morgan closed Friday at $41.12.
Plains GP Holdings L.P. (NYSE: PAGP) is another of the general partner companies that the Credit Suisse team likes for 2015. The company does not hold any midstream assets, but it does own some of Plains All American’s general partner and incentive distribution rights. That entitles it to receive an increasing share of cash distribution from Plains All American. The nice thing for investors is they receive a 1099 instead of the more complicated, and sometimes late arriving, K-1.
Shareholders are paid a 2.9% dividend. The Credit Suisse price target is $34, and the consensus target is $32.65. Shares closed Friday at $26.39.
Williams Companies Inc. (NYSE: WMB) is one of the leading energy infrastructure companies in North America and it owns controlling interests in both Williams Partners and Access Midstream Partners through its ownership of 100% of the general partner of each partnership. Williams also owns approximately 66% and 50% of the limited partner units of Williams Partners and Access Midstream Partners, respectively. The company remains one of Credit Suisse’s top stock picks over the next year.
Investors are paid a very respectable 4.55% distribution. The Credit Suisse price target is set at $70, and the consensus is $64.57. Williams closed trading on Friday at $50.04.
ALSO READ: Analyst Sees 4 Clean Technology Stocks as Big 2015 Winners
Conservative investors looking to buy these stocks may want to buy partial positions now and see if they precipitous decline in oil continues. While most on Wall Street think the sell-off is almost over, speculative traders may continue to lead on forward futures contracts, trying to squeeze the last drops out of what has been a massive sell-off and also short.
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