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Investing Topics: MLPs

Growing Pains: MLPs Go Mainstream

The rhetoric underpinning many of the more than 60 presentations that we attended at the National Association of Publicly Traded Partnership’s annual investor conference was remarkably similar.

Midstream master limited partnerships repeatedly emphasized the progress they’d made increasing fee-based revenue and insulating cash flow against swings in commodity prices.

Meanwhile, management teams also highlighted their firms’ positions in the best shale plays, the number of blue-chip energy producers with which they have contracts, their low-risk expansion plans and forecasts for distribution growth.

To filter the barrage of information we gleaned during these presentations and subsequent breakout sessions with management teams, we opted to focus on two criteria: an MLP’s prospects for growth and its relative valuation. Over the course of two jam-packed days of presentations and meetings, we identified eight MLPs that trade at reasonable valuations across the risk spectrum. 

Profit from General Knowledge

Income-seeking investors should consider the universe of pure-play general partners, a niche segment that comprises 12 names–six corporations and six publicly traded partnerships or limited liability companies. Although these names generally sport lower yields than the limited partnerships they manage, their superior distribution growth can generate impressive total returns. 

Focus on Undervalued Distribution Growth

Despite a challenging year for ethane and propane prices, this midstream MLP still managed to meet its target for double-digit distribution growth. With the price of these natural gas liquids bottoming out and an impressive slate of expansion projects on the horizon, the latest addition to our Focus List should deliver distribution growth of 10 percent to 12 percent in 2013.

Strategy Session

With the stock market due for a 10 percent to 15 percent pullback after its extended rally (the topic of my recent appearance on CNBC), we’ve opted to book gains on some of the stocks in our Focus List. As a replacement, we highlight an undervalued name that has the scope to grow its quarterly payout by at least 10 percent in 2013.

We also update our outlook for Linn Energy LLC (NSDQ: LINE) after delving into the upstream operator’s fourth-quarter results and factoring in its agreement to acquire Berry Petroleum (NYSE: BRY). 

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    • 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