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Feature Article

Three Growth Themes for MLP Investors

We highlight some of the key growth themes investors should keep in mind as they position for the next few years and highlight the MLP Portfolio holdings that stand to benefit from these opportunities.

On the Radar

Shares of many exploration and production companies have rallied too far, too fast. However, investors will profit from exposure to names that can win market share in an environment where crude oil ranges between $40 and $60 per barrel–provided that they bide their time and buy at the right price. We highlight a handful of names to keep on your radar screen.

Updated Take on Oil Prices

Despite the recent rally in crude-oil prices and investors over-exuberance toward energy stocks, potential downside catalysts outweigh the upside drivers in the near term. Although we expect jagged volatility in energy prices in 2016, oil prices to settle into a range of $40 to $60 per barrel over the next few years–and that relative stability will be good news for select energy stocks.

MLP Watch List

The three master limited partnerships (MLP) on our watch list share several qualities: strong balance sheets, solid management teams and well-positioned asset bases that will generate organic growth in the intermediate term.

Oil-Field Services and Equipment: Exercise Caution

Despite the recent rally in shares of oil-field service providers, our negative outlook for activity levels in the international market and skepticism regarding the timing and magnitude of a recovery in North America explains why we remain underweight oil-field services and capital equipment. Many of these stocks have rallied too far, too fast and don’t account for overcapacity that remains to be worked off from the boom years.

Refining Our Outlook

The second golden age of refining appears to be winding down, especially for the inland refiners that flourished at the height of the shale revolution. The price spread between WTI and Brent has narrowed dramatically, erasing a huge competitive tailwind for US refiners. At this juncture, the potential downside risk outweighs any upside. Valuations and investor sentiment need to adjust to these realities. However, a painful first-quarter for refining operations, coupled with depressed oil and gas prices, could land shares of integrated oil and gas companies on the discount counter.

 

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    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor