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MarkWest Energy Partners, L.P. Message Board

  • cretan1948 cretan1948 Apr 22, 2010 10:12 PM Flag

    Best LPs to invest in

    Writers on this board seem to have detailed knowledfe of LPs. Can some one give an opinion as to the relevant value of three or four of the best wirh respect to security and yield? I own EPD but sone others are cheaper with better yield. Is it just risk? Many thanks.

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    • Start by doing enough DD to recognize the difference between various MLPs. If you're interested in pipeline MLPs, there are some good MLP Primers on the web.

      Morningstar is a good reference. They do a good fundamental analysis of a large number of MLPs, available only to Premium members but worth the cost. Visit the websites of any MLPs you like, see how they differ from each other.

      Join Investors Village (free) at http://www.investorvillage.com/ and start reading the MLP Board. Read all the posts by Factoids and Passandshoot for openers, although there are many other excellent people on that board. Study Factoids' data carefully--it is more complete and more accurate than anything you will find available from any broker. Start with his "Suggestions for a Newbie's Portfolio--2010 Edition", which is message # 11466. Also, continue with this board (and consider MWE), but forget most of the other Yahoo boards.

      About now, you should have a fair idea which MLPs will work best for you. Good luck!

      • 1 Reply to lner2512
      • I fully agree with lner2512's comments.

        Online there are some excellent primers available for free at the MLP industry group (National Association of Publicly Traded Partnerships...NAPTP) website: www.naptp.org
        The primers are in their PTP 101 section, specifically at
        http://www.naptp.org/Navigation/PTP101/PTP101_Main.htm

        The primer I like the most (hits that Goldilock's place for me...not too hard, not too soft) is the Wachovia primer, but all the ones at NAPTP are good. The Wachovia primer does a great job of explaining not only what the heck an MLP is, but the different sectors of the energy-related MLP universe. For example, there are huge differences between MLPs in the coal extraction business, MLP running storage (tank farms), MLPs with pipelines carrying refined products (gasoline, diesel, jet fuel, etc.) from refineries to regional distribution points, and those providing pipeline services from the wellhead to a central location to process (clean) and transfer the raw materials into pipelines headed to refineries. I think that primer describes 9 different sectors. Obviously the risks and stability are very different for each of these. Keep in mind that the numerical data in all the primers is likely outdated...look at their publication date...but the explanation of the concepts are excellent.

        There are many aspect of safety you have to weigh...and that is up to you. One size does NOT fit all.
        Safety/stability of distribution?
        Safety/stability of distribution growth?
        Safety/stability of tax shield?

        MLPs run the spectrum from very, very safe (with very slow distribution growth potential) all the way to small newbies with a shoot-the-moon potential.

        FYI, the April 2010 Wells Fargo (who ended up owning Wachovia after the financial industry meltdown) monthly report on the MLP universe they cover has a nice brief figure classifying MLPs by WF's opinion of the security of the distribution.

        "Rock Solid" Distributions; These MLPs have predominantly fee-based cash flows and minimal (or no) direct commodity exposure. Their list is BPL, BWP, EPB, MMP, SEP, SXL, TGP, WMZ

        "Secure" Distributions; These MLPs have moderate commodity exposure and/or other non-fee based activities (marketing, volumetric risk, etc). Their list is APU, DEP, EEP, EPD, ETP, EXLP, GEL, KGS, KMP, NRGY, NS, OKS, PAA, RGNC, SPH, TCLP, TLP, TOO, WES, WPZ

        All Other MLPs; These MLP have meaningful commodity exposure/other nonfee based activities and/or a projected ’10 coverage ratio less than 1x. The list includes APL, ARLP, BBEP, BKEP, CEP, CPNO, DPM, ENP, EROC, EVEP, FGP, HEP, KSP, LGCY, LINE, MMLP, MWE, NGLS, NRP, PSE, VNR, XTEX

        Note that the MLPs in these lists exclude all traded GPs and the 2 i-shares (KMR and EEQ)...these are all too much horses of a different color to include in the same rating system.

        That monthly report includes a hugely important caveat: "To note, the preceding list does NOT reflect our investment ratings and/or valuation ranges." Rock solid distributions does not necessarily make for a timely investment, For example if the MLP is already overpriced. Wachovia has some of the the MLPs in their "All Other MLP" list on their short "Top Pick" list (which includes 12 of the 58 MLPs that WF covers).

 
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