If any sector has taken a beating since the beginning of the year, it is the energy master limited partnerships (MLPs), and there is really no good explanation as to why. The Alerian index that tracks the sector is down over 14%, despite the fact that oil has remained above the $60 level. With OPEC compliance on the production cuts expected to remain at current levels, there is a chance for a price increase this year near $70 a barrel.
A new report from Baird notes the sizable OPEC cuts and also points to huge demand from Mexico, which has jumped dramatically over the past two years. The report said this in regards to that demand:
Mexico is now importing ~600 million barrels per day of gasoline, nearly double that of early 2016. Imports of middle distillates are averaging ~250 Mbpd, similarly doubling those of early 2016. Over 80% of Mexico’s gasoline imports and over 90% of middle distillate imports are from the U.S.
The Baird team has extensive coverage of the MLPs. We screened their coverage universe and found five that look very attractive now for total return investors looking for growth and income. All are rated Outperform at Baird.
Antero Midstream
This company rounds out the top five picks at Credit Suisse. Antero Midstream Partners L.P. (NYSE: AM) owns, operates and develops midstream energy assets. Its assets include 8-inch, 12-inch, 16-inch and 20-inch high and low pressure gathering pipelines and compressor stations that collect natural gas and oil and condensate from wells in the Marcellus Shale in West Virginia and the Utica Shale in Ohio, as well as water handling and treatment assets.
The company’s Marcellus and Utica Shale gathering systems comprised 182 miles and 110 miles of pipelines, and the water handling systems include 184 miles and 75 miles of pipelines.
The provider of water and other services for fracking operations is 62% owned by oil and gas exploration company Antero Resources. Antero Midstream operates its parent’s pipelines and compressor stations and is expanding its presence among fracking operations. It operates mostly in the southwestern core of the Marcellus Shale field in northwest West Virginia and the core of the Utica Shale field in southern Ohio. More importantly, as a supplier/distributor, it’s shielded in large part from the volatility involved with the natural gas extraction business.
Antero Midstream investors are paid a 5.35% distribution. The Baird price target for the shares is $43, and the Wall Street consensus target is $38.29. The stock closed Tuesday’s trading at $27.30 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 unitholders receive a massive 12.62% distribution. Baird has a $22 price target, while the consensus target is $24.26. The shares closed most recently at $17.91.
Green Plains Partners
This clean energy stock has gained a strong Wall Street following. Green Plains Partners L.P. (NASDAQ: GPP) is an unconventional renewable energy pick, but with a market capitalization just over half a billion dollars and a big dividend yield, the company could be a nice income or growth hold.
The Nebraska-based company specializes in the storage, processing and transportation of ethanol fuel. Ethanol is already a major component of current fuel options. Most retail gasoline contains some ethanol, but there is a push to increase the use of pure ethanol fuel for commercial purposes.
Demand for renewable liquid fuels is expected to grow two-fold by 2030 and four-fold by 2040. Green Plains is looking to capitalize on this push and adoption by providing the infrastructure that will underpin the industry as it expands.
Green Plains shareholders are paid a 10.39% distribution. The $25 Baird price target compares with the consensus target of $22.67. Shares closed at $18.10 on Tuesday.
Summit Midstream
This company has hit our insider buying screens numerous times over the past two years. Summit Midstream Partners L.P. (NYSE: SMLP) focuses on owning, developing and operating midstream energy infrastructure assets primarily shale formations, in North America. The company provides natural gas gathering, treating and processing services pursuant to primarily long-term and fee-based gathering and processing agreements with customers and counterparties in five unconventional resource basins.
Since going public in 2012, the company has continued increasing its distribution as the result of a number of acquisitions and investments that grew its footprint across most of the major shale plays. The company recently guided 2018 in line with expectations, and it should be another year of smooth growth and consistent distributions.
Summit Midstream investors receive a huge 14.84% distribution. Baird has set its price target at $22. The posted consensus target price was last seen at $20.89. The shares closed on Tuesday at $15.50.
Sunoco
This was a big consolidation story a couple of years ago, and it remains a safe play for investors. Sunoco L.P. (NYSE: SUN), together with its subsidiaries, engages in the wholesale distribution and retail sale of motor fuels, primarily in the United States. The company serves convenience stores and commission agent locations, contracted independent convenience store operators and other commercial customers.
The company also distributes other petroleum products, including propane and lubricating oils, and it leases or subleases real estate properties. As of December 31, 2017, it operated 1,348 convenience stores and fuel outlets offering merchandise, food service, motor fuel and other services in approximately 20 states.
Sunoco investors are paid an 11.78% distribution. The Baird price objective is $36. The consensus target is lower at $32.50, and the shares closed most recently at $28.02.
These five top stocks are rated Outperform by the Baird analysts, pay solid and large distributions, and are cheap compared to the overall market. Given the expensive nature of the market right now, they may be among the best values to be had.
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