CS likes stocks exposed to NGL's and oil transport-from rlp
eroc not mentioned but still fits the NGL mold
Msg 26835 of 26836 at 10/25/2012 1:11:26 PM by
The following message was updated on 10/25/2012 1:12:06 PM.
CS: Master Limited Partnerships Are Undervalued
From Barron's Blog:
Master Limited Partnerships Are Undervalued
Credit Suisse likes stocks exposed to natural-gas liquids.
In the wake of the Internal Revenue Service ruling approving ethylene steam crackers as qualified for master-limited-partnership treatment, we thought it would be useful to review how the MLP structure has the potential to unlock value.
Last week, the Alerian MLP (AMZX) and Cushing 30 MLP indexes lost 0.1% and 0.2%, respectively, while the Standard & Poor's 500 gained 0.3%. Nine MLPs are scheduled to release earnings this week after the Kinder companies got us started last week. The S&P 500 still enjoys a sizable year-to-date (as of Oct. 19) total return advantage over both MLP benchmarks. The S&P 500 has gained 16% in 2012 versus 9.3% for the AMZX and 6.3% for Cushing. Investors will recall that the AMZX has topped the S&P 500 for 12 consecutive years.
The Kinder Morgan companies ( Kinder Morgan Energy Partners (ticker: KMP), Kinder Morgan (KMI), Kinder Morgan Management (KMR), El Paso Pipeline Partners (EPB)) got MLP earnings season started Oct. 17 with results that were for the most part slightly ahead of Credit Suisse and consensus estimates though Kinder did caution that its full-year outlook is projected to come in at the low end of its budget.
We believe that an increased focus on crude-oil infrastructure should drive performance given the coming boom in North American crude-oil production. Our favorite names all have substantial exposure to the coming oil boom: Plains All American Pipeline (PAA), Magellan Midstream Partners (MMP), Enbridge Energy Partners (EEP), Enterprise Products Partners (EPD), Genesis Energy (GEL) and Kinder Morgan Management/Kinder Morgan/Kinder Morgan Energy.
We also believe that high-quality names with exposure to the natural-gas-liquids (NGL) market warrant consideration despite the price headwinds of the next few years, due to the strong growth associated with adding a large portfolio of contracted assets. Names for consideration include DCP Midstream Partners (DPM), Oneok Partners (OKS) and MarkWest Energy Partners (MWE). We also like El Paso Pipeline on the natural-gas side.
As a group, MLPs remain relatively undervalued relative to other yield-oriented securities—such as the U.S. 10-year and investment-grade and high-yield bonds—and fairly valued from the standpoint of overall yield, and several names are attractively priced. The infrastructure/logistics that are more closely aligned with liquids transportation also fit our recommendation that investors pursue a more conservative posture of focusing on names with large-asset footprints, diverse cash flows, and limited direct commodity price exposure. We continue to advocate a more conservative position for the long term owing to unsustainably high deficits being pursued by most rich developed countries in the world, including the U.S. and Western Europe.