After a large sell-off that started last summer, the energy master limited partnerships (MLPs) may be of some interest. After a recent pull back, Credit Suisse’s John Edwards is backing a trade within the sector. Some targets have been trimmed, but a fresh research note has identified those MLPs that are favored for a rising interest rate environment.

With the sector down well over 20% from the peak, Credit Suisse believes that it is in bear market territory. Ultimately the firm thinks the bottom is not here yet, but it believes that the MLP sector likely is higher a year out. The sector has fallen around 12% this year, versus 2% total return for the S&P 500. The top picks are Energy Transfer Equity L.P. (NYSE: ETE), Genesis Energy L.P. (NYSE: GEL) and Tallgrass Energy Partners L.P. (NYSE: TEP).

Considering the impending increase in the federal funds target rate, Credit Suisse wanted to study the performance of MLP subsectors across rising and falling interest rate cycles in an effort to identify the best-performing MLPs.

In terms of the outlook, Credit Suisse expects distribution growth of roughly 7% for the names under its coverage, within the 5% to 8% range it called for. There have only been a handful of situations where distribution growth has slowed or been reduced.

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Despite this, the brokerage firm still expects infrastructure spending to drop slightly in 2015. Capital spending in 2015 is likely to peak at $120 billion less to invest by producers with $35 per barrel oil prices in 2015.

For natural gas, Credit Suisse expects weakness to continue, as well as near-term volatility in oil, but rebalancing has already started.

In the report Credit Suisse noted that faster growing MLPs still appear to be the way to play:

During the most recent peak to trough (8/29/14 – 1/13/15), top quintile MLP growers outperformed the median by 900bp and the bottom quintile growers by 1600 bp, reinforcing our prior call. The top GPs fared even better relatively.

Units of Energy Transfer were up 2.1% at $64.28 Thursday morning. It has a consensus analyst price target of $84.70 and a 52-week trading range of $45.88 to $70.88. It has a distribution of $1.96 annually, or a yield of 3.1%. Credit Suisse likes it with or without the Williams combination.

Genesis units were up 1.2% at $44.56, in a 52-week trading range of $34.57 to $56.88. The units have a consensus analyst price target of $54.67. The distribution is $2.44 annually, or a yield of 5.6%.

Units of Tallgrass were down 0.3% at $45.46, in a 52-week trading range of $33.83 to $53.70. Tallgrass has a consensus analyst price target of $58.58. This company has a distribution of $2.08 annually, or a 4.2% yield equivalent.

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