While the earnings season for many of the top S&P 500 stocks will start to wind down soon, things are just starting to heat up for the top energy master limited partnerships (MLPs). It should prove to be an interesting one to boot, as many on Wall Street are braced for what could be some somber reports. The good news is the MLP space has strung together six straight positive weeks during which the Alerian MLP Index (AMZX) index gained 7.3%.

In a new report, John Edwards and his team at Credit Suisse remain positive that despite the rally, which is the longest since 2010, the top stocks in the space still have further upside. They also point out that the segment has just come off two quarters of commodity pricing correction, and three consecutive negative quarters has occurred only once since the inception of the segment. That was back in 1998.

The Credit Suisse team stays with the big boys in the segment with three top picks: Energy Transfer Equity L.P. (NYSE: ETE), Kinder Morgan Inc. (NYSE: KMI) and Plains All American Pipeline L.P. (NYSE: PAA). It is important to remember that MLP distributions can contain return of principal.

Energy Transfer Equity

A director step up to the plate near the end of last year and make gigantic insider purchases here. Kelcy Warren bought a total of 1,178,567 shares of the company stock at price 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.

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Sunoco, an affiliate of the company, recently purchased eight Pico convenience stores in South Central Texas. Sunoco is the MLP that mainly supplies motor fuel to independent dealers, stores, distributors and commercial customers. Apart from its distribution business, the partnership also involves in the operation of retail fuel units and 150 convenience stores.

Energy Transfer unitholders are paid a 2.8% distribution. The Credit Suisse price target for the stock is $78. The Thomson/First Call consensus price target is also $78. Shares closed Monday at $66.13.
Kinder Morgan

This is another top pick at Credit Suisse for clients to buy now, though it is no longer purely an MLP. It is also one of the most recommended in the sector on Wall Street. The company announced last 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. Some shareholders were opposed to the move, but it was one many on Wall Street saw as brilliant.

In a recent interview, Richard Kinder, the respected leader of the company, said that more mergers and acquisitions could be in store as prices have become increasingly opportunistic. He said the MLP giant would not be making any foolish buys, but that tremendous opportunity could lie in Mexico in the pipeline system there, where the company already has one pipeline.

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Kinder Morgan unitholders are paid a solid 4.35% distribution. The Credit Suisse price target for the iconic industry giant is $52, and the consensus target is $47.69. Kinder Morgan closed Monday at $44.11.

Plains All American Pipeline

This is another one of the top stocks on Wall Street that has had the power to withstand the downturn. Plains All American owns and operates midstream energy infrastructure and provides logistics services for crude oil, natural gas liquids (NGLs), natural gas and refined products. The company owns an extensive network of pipeline transportation, terminalling, storage and gathering assets in key crude oil and NGL-producing basins and transportation corridors and at major market hubs in the United States and Canada. On average, Plains All American handles over 4.1 million barrels per day of crude oil and NGL on its pipelines.

The company also has one of the largest storage asset bases, with over 120 million barrels of liquids storage capacity at the three major hubs located around the country in Cushing, Okla.; Midland, Texas; and Patoka, Ill.

Investors are paid a very sizable 5.41% distribution. The Credit Suisse price target is $65, and the consensus target is lower at $59.30. Shares closed Monday at $50.65.

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Despite the Credit Suisse optimism, they hedge that a little by making the firm’s top picks for clients to buy true industry giants with little chance of failure. With a very pricey market and a volatile energy sector, that is probably excellent advice right now.

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