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Investing Topics: Energy IPOs

MLP Class of 2014, Part 3

Over the past three years, investors seeking differentiated returns have found recent initial public offerings (IPO) in the MLP space to be a fruitful hunting ground.

In 2011, two fledgling MLPs–Golar LNG Partners LP (NYSE: GMLP) and Tesoro Logistics LP (NYSE: TLLP)–cracked the list of that year’s top 10 performers. This number increased to six in 2012 and four in 2013. And thus far in 2014, IPOs that priced within the past 12 months have accounted for four of the top-performing MLPs.

Why do newly listed publicly traded partnerships tend to outperform?

MLPs often grow their distributions at an accelerated rate in their first two years as a publicly traded entity. These rising quarterly payouts, coupled with a raft of positive research reports from Wall Street analysts, tend to attract investors’ attention and drive the stock price higher.

At the same time, brokerage and financial websites often misreport recently listed MLPs’ yield until the firm has paid a full year’s worth of distributions. This quirk gives investors an opportunity to buy these stocks before the herd realizes how much the units yield.

In the past, investing in fledgling publicly traded partnerships has proved to be a winning proposition and an opportunity to find value. However, investors should be forewarned selectivity is critical to this strategy’s success.

Making Sense of the Marcellus Shale’s Midstream Madness

The stakes are high for the masters of midstream, particularly in the Northeast where surging output of natural gas has overwhelmed local demand and existing takeaway capacity, depressing the prices at Pennsylvania’s Leidy Hub relative to the Henry Hub in Louisiana.

Three Forthcoming MLP IPOs to Buy

In addition to the seven energy-related MLPs that have completed their initial public offerings thus far in 2014, eight prospective publicly traded partnerships have filed their initial registration statements with the Securities and Exchange Commission (SEC). Three of these names stand out as good bets for investors.

PBF Logistics LP: Following a Well-Worn Path

With PBF Logistics LP’s (NYSE: PBFX) initial public offering, refiner PBF Energy (NYSE: PBF) followed in the footsteps of first mover HollyFrontier Corp (NYSE: HFC) and became the latest independent refiner to spin off its storage and transportation assets as a MLP.

Enable Midstream Partners LP: Large and in Charge

Despite completing its initial public offering in April 2014, Enable Midstream Partners LP (NYSE: ENBL) already boasts $11 billion in total assets, making the master limited partnership (MLP) one of the largest midstream names in our MLP Ratings. The size and diversity of the partnership’s asset base distinguishes it from the other MLPs that have completed their IPOs this year. 

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