After another outstanding year in the stock market, the Alerian Master Limited Partnership (MLP) Total Return Index underperformed the S&P 500 but was still up 27.6%. The general consensus starting to emerge from Wall Street is that the MLP sector may have seen its best days, at least for now. In a new research report, the MLP analyst team at Merrill Lynch cautions that volatility may lurk in the sector.

Merrill Lynch does still have some Buy ratings here. Despite all of their concerns, they have upgraded three top names to buy with four top picks for 2014. The problem is that the firm believes the triple threat of increasing interest rates, volatile commodity pricing and overall MLP equity supply may combine to produce a potentially choppy year.

While the Merrill Lynch analysts do not see a sector collapse, they do see downside risk from a potential crude oil price downdraft and mixed MLP fundamentals. They prefer to remain very selective with regard to individual stock selection. They also expect another year of robust equity issuance (including IPOs). Mergers and acquisitions may play a key role as larger MLPs look for growth beyond the current round of capex programs.

Energy Transfer Partners L.P. (NYSE: ETP) is a top stock pick for 2014. According to the company’s own reports, its most recent distributable cash flow figures add up to $2.3 billion for the 12 months ended last September, a big 43% improvement over the $1.3 billion reported for the same period in 2012. The company has sold off its Missouri Gas Energy and New England Gas Company assets in separate transactions, raising more than $1 billion in the process. Investors receive a 6.53% distribution. It is important to remember that MLP distributions can contain return of principal. The Merrill Lynch price target is $61. The Thomson/First Call estimate is at $60. The stock closed Monday at $55.18.

MarkWest Energy Partners L.P. (NYSE: MWE) is another top name to buy and could be a big player in the natural gas rich Marcellus Shale. As of 2013, the company could process 2.2 billion cubic feet of natural gas per day, but through eight expansion projects, MarkWest will be able to process 3.7 Bcf/d in the region within the next few years. Investors are paid a 5.12% distribution. The Merrill Lynch price objective is $80, and the consensus is at $77. MarkWest closed Monday at $66.78.

Plains All American Pipeline L.P. (NYSE: PAA) remains a top name to buy at most of the Wall Street firms we cover. The company has decided to invest $120 million in two projects in the Eagle Ford area. The company is developing a new NGL fractionator, which will be in La Salle County, Texas. Natural gas liquids (NGLs) will be sourced from the company’s Eagle Ford-producing region and will be processed and fractionated. This project, designed to fractionate up to 15,000 barrels of NGL per day, is expected to be operational by the second quarter of 2015. Investors are paid a 4.7% distribution. Merrill Lynch has a $60 price target, the same as the consensus target. Shares closed Monday at $50.83.

Western Refining Logistics L.P. (NYSE: WNRL) rounds out the top four picks for 2014 at Merrill Lynch. The company was a recent 2013 IPO and has continued to do well since the offering. The company also recently acquired 100% general partner interest and 38.7% limited partner interest in Northern Tier Energy. Investors have not been paid a distribution yet. The Merrill Lynch price target is $29, and the consensus figure is at $28.50. The stock closed Monday at $27.62.

Global Partners L.P. (NYSE: GLP) is raised from Neutral to Buy for 2014. The company distributes gasoline, distillates, residual oil and renewable fuels to wholesalers, retailers and commercial customers in the New England states and New York. It operates in three segments: Wholesale, Gasoline Distribution and Station Operations, and Commercial. Investors receive very solid 6.6% distribution. The Merrill Lynch price target is set at $41. The consensus target is $36.60. Global Partners closed Monday at $36.15.

Martin Midstream Partners L.P. (NASDAQ: MMLP) is upgraded to Buy, and it has seen solid insider buying recently. Both the CEO and the CFO bought stock in December. In addition, a recent change in the partnership’s ownership structure has significantly changed Martin Midstream’s access to growth capital. This could increase the company’s ability to fund revenue growing projects. Investors are paid an outstanding 7.24% dividend. Merrill Lynch has a $49 target, and the consensus is at $48. The stock closed Monday at $43.38.

Tesoro Logistics L.P. (NYSE: TLLP) is also upgraded to Buy and rounds out the top MLP names at Merrill Lynch for 2014. The company operates in two segments. The Crude Oil Gathering segment consists of a crude oil gathering system in the Bakken Shale/Williston Basin area of North Dakota and Montana. The Terminalling, Transportation and Storage segment owns and operates eight refined products terminals in the midwestern and western United States. Investors receive a 4.1% distribution. The Merrill Lynch price target is $59, and the consensus is posted at $61.50. The stock closed Monday at $52.65.

While the hot performance of the MLP sector is indeed likely to slow down in 2014 for a number of reasons, income investors looking for a modicum of growth should continue to keep some exposure to the sector. It also will be important to see if government regulation on oil exports is altered. If it is, that could have a very positive impact on the sector, and the top stocks.

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