Prices Inflate as Spectra, DCP Soar

Boardwalk Pipeline Partners LP (NYSE: BWP) was the second-best performer in the Conservative Portfolio over the last month, rising 6 percent to exceed our buy point yet again in a quick recovery from the late-May equity offering. With a 6.9 percent yield and an excellent opportunity to capitalize on booming gas production from the Marcellus and Utica shales, BWP remains a Buy below $30.  

Buckeye Partners LP (NYSE: BPL) units gained 4 percent over the last month, kicking off July with a record high on a strength of a 5.9 percent yield and the resumption of increases in distributions. The action followed last month’s increase in our Buy Below target. High crude prices should help the bottom line and the impending sale of oil terminals by Hess (NYSE: HES) may let Buckeye pick up some complementary assets. Buy BPL on dips below $70.

DCP Midstream Partners LP (NYSE: DPM) is up 17 percent since last month’s designation as a Best Buy, quickly surpassing our increased buy threshold. On June 17, the partnership along with corporate sponsors Spectra Energy (NYSE: SE) and Phillips 66 (NYSE: PSX) announced that the jointly owned Sand Hills and Southern Hills natural gas liquids pipelines entered service on budget and ahead of schedule. The pipelines will transport NGLs gathered by DCP and third parties in the Permian, Eagle Ford and Midcontinent basins to fractionation plants along the Texas Gulf Coast. That should help DCP meet its goal of boosting distributions by 6 to 8 percent this year, above the recent 5 percent growth rate. Continue to buy DPM on any dips below $50.

The Good and The Ugly

mlp standouts chart

El Paso Pipeline Partners LP (NYSE: EPB) units gained 2 percent in the last month, but are up nearly 9 percent since June 20. June 27 brought a new record high as El Paso benefits from ownership by industry giant Kinder Morgan (NYSE: KMI) , its own extremely stable revenue base and the potential upside from future LNG exports.  EPD remains a buy on any dips $42.

Energy Transfer Partners LP (NYSE: ETP) eked out a 1 percent gain over the last month, while shares of general partner Energy Transfer Equity (NYSE: ETE) added 3 percent since it was added last month to the Growth Portfolio. ETP is now slightly above its $50 maximum buy target, while ETE still has a little room below $62. The current yield is 7.1 percent for ETP and 4.3 percent for ETE. Continue buying ETE below $62 for the faster distribution growth it should deliver thanks to incentive distribution rights.

Enterprise Products Partners LP (NYSE: EPD) gained 4 percent since we raised our Buy Below target last month, an excellent performance for the low-risk giant. The partnership is due to report quarterly results July 11, an expectations are high given its strong recent margin gains. In the last month, Enterprise added $1 billion to an untapped credit line now offering up to $4.5 billion, and formed a joint venture with Western Gas Partners LP (NYSE: WES) for two new NGL fractionation trains on the Texas Gulf Coast. Continue to buy EPD below $66.

Genesis Energy (NYSE: GEL) rose 3 percent in the last month, with two-thirds of that coming on Friday. That still leaves the units modestly shy of our recently raised $55 Buy Below target ahead of tomorrow’s quarterly results. The 32nd consecutive distribution increase maintaining an annual growth rate above 10 percent would be par for the course for this oil-oriented midstream operator, which should benefit from higher crude prices. Buy GEL up to $55.

Inergy Midstream LP (NYSE: NRGM) gained 2 percent over the last month, a tepid comeback from the much heavier selling following the now completed merger with Crestwood Midstream Partners, described more fully in the last issue. We’ll take a modest gain given the partnership’s dramatically increased public float, but are sticking with the Hold rating assigned last month until we see how the combination plays out.

Kayne Anderson Energy Total Return (NYSE: KYE) broke even for the month. The closed-end fund was dragged down by big stakes in recently underperforming investments Enbridge (NYSE: ENB) and Plains All American Pipeline LP (NYSE: PAA), which are not otherwise represented in our portfolios. We’d also hesitate to buy so long as the fund trades above its net asset value. But that’s not an issue currently with units at nearly $29 and our Buy Below target at $27

Kinder Morgan Energy Partners LP (NYSE: KMP) was the laggard in the Conservative Portfolio, gaining less than 1 percent over the last month. But at least it outperformed its general partner and recent Growth Portfolio addition Kinder Morgan (NYSE: KMI), which slid nearly 3 percent. Perhaps the problem continuing disappointment in the wake of the recent cancellation of the $2 billion Freedom Pipeline, which would have linked Texas oil wells to California refineries. Or maybe incestors were put off by a pair of late-June leaks on the Trans Mountain Pipeline moving Alberta crude to Canada’s West Coast. In any case, a yield of 4 percent for KMI and 6.1 percent for KMP still offers plenty of support ahead of quarterly numbers due July 17. Continue buying KMP below $86 and KMI below $42.

Legacy Reserves LP (Nasdaq: LGCY) avoided  the turbulence that befell other upstream MLPs in the last month, leading the Aggressive Portfolio with a 5 percent gain after last month’s upgrade to a Buy, though it has plenty of headroom still below our $29 maximum buy point.  On July 1 the partnership completed a $68 million acquisition reinforcing its synergies in the Permian Basin. (The Mid-Continent and Rocky Mountain basins are other areas of focus.)The partnership reports earnings on July 29, and investors will be looking for another big year-over-year production boost along with the 11th straight increase in quarterly distributions. Buy LGCY below $29.

Linn Energy LLC (Nasdaq: LINE) was downgraded to a Sell last week after disclosing a Securities and Exchange Commission probe of its accounting. There is no reason to suspect that the bookkeeping is fraudulent rather than merely aggressive, but every reason to expect Linn to remain a battleground between investors and determined short sellers. We deem the reward not worth the risk, though we also noted last week that LINE was likely to rebound in the wake of wholesale liquidation. Despite Monday’s big gain, units remains well short of their closing price on the day the SEC news broke. Sell LINE.

Magellan Midstream Partners LP (NYSE: MMP) gained more than 5 percent over the last month. Last week, it closed the previously announced acquisition of a 250-mile refined products pipeline from Plains All American. The pipeline accounted for $57 million of a larger $190 million deal still pending Federal Trade Commission approval. The completed portion of acquisition will allow Magellan to transport refined products from El Paso, Texas north to New Mexico and south to the Mexican border. The deal reinforces Magellan’s position as the largest transporter of refined products. Units currently yield 3.7 percent and now a Hold given the extent of their rise above the prior Buy Below target.  

Mid-Con Energy Partners LP (Nasdaq: MCEP) suffered collateral damage from Linn’s mess, losing more than 4 percent over the last month even though it is far less leveraged than Linn and carries very little debt relative to its cash flow and market cap. We think better days are ahead, especially if the small-cap partnership continues to increase distributions, as it has already done twice since the initial public offering in late 2011. Units currently yield 9.1 percent and remain a Buy below the reduced $24 threshold.

Navios Maritime Partners LP (NYSE: NMM) bobbed 2 percent higher in the course of the month and an even stronger 5.7 percent since June 24, as the shipper played catch-up to the Baltic Dry Index of shipping rates, which has recently rallied off historic lows. A further recovery in charter rates would temper worries about long-term vessel charters expiring late this year and especially in 2014. Concerns that the distribution could be cut appear to be priced in to the partnership’s current 12 percent yield. Navios should be able to maintain its current payout for the balance of the year, as it waits for rates to improve. In late June, it closed on a term-loan that will refinance prior debt and finance the previously announced purchase of four new vessels. Amid the shipping slump, shipyards have cut prices, encouraging fleet owners to order new ships that burn less fuel. NMM remains a Hold, but is drifting closer to a buy if shipping rates show further progress.

Oiltanking Partners LP (NYSE: OILT) gained 2 percent last month, held back perhaps by the modest 3.2 percent yield. The partnership, an affiliate of a family-owned German company, has increased distributions by a bit more than 10 percent annually since coming public two years ago. It’s benefitting from strong demand for storage facilities as the US shifts from crude importer to exports of refined fuels.  Buy OILT below $50.

PVR Partners LP (NYSE: PVR) paced the Aggressive Portfolio with a monthly gain of more than 5 percent, on hopes for continued strong growth from recently acquired gas gathering assets and stronger coal prices to bolster lease royalties. Quarterly earnings are due July 22. Buy PVR on dips below $25.  

Regency Energy Partners LP (NYSE: RGP) units gained 2 percent last month as the Energy Transfer Equity affiliate continued to focus on gathering and processing in some of the fastest growing shale plays. It’s currently focused on integrating a gathering system contributed by another Energy Transfer affiliate in the Permian Basin and growing gas processing revenue at Eagle Ford as well as NGL fractionation on the Gulf Coast. Units currently yield 6.9 percent. Continue to Hold RGP.

Spectra Energy Partners LP (NYSE: SEP) soared nearly 25 percent in  the last month, far ahead of any other portfolio holding, after sponsor Spectra Energy (NYSE: SE) said it would drop down its remaining US transmission and storage assets to the affiliated partnership. Spectra appeared to responding to pressure from an activist fund for more comprehensive divestitures. More details are expected on Spectra’s Aug. 5 earnings conference call, but since the apparent yield has already been driven down to 4.4 percent by recent buying, it appears higher distributions are priced in. The price has run so far ahead of our buying point that we’re shifting our rating to a Hold.

Targa Resources Partners LP (NYSE: NGLS) was Growth Portfolio runner-up with a surge of 9 percent over the last month, boosted by expectations of rapid growth in a distribution that already offers a yield of 5.4 percent. Targa, which is targeting a distribution increase of 10 to 12 percent this year, is another NGL processor working to convert plentiful Texas condensate into a cheap feedstock for fuel that could be exported. Earnings are due Aug. 5. Buy NGLS below $44 should that opportunity present itself again    

Teekay LNG Partners LP (NYSE: TGP) shares coasted nearly 5 percent higher in the last month as the operators of liquefied natural gas carriers chartered two of its newest vessels to Cheniere Energy (NYSE: LNG) for LNG exports from its Gulf Coast terminal starting in 2016. The prospect of more such deals augurs well for growth in a distribution currently yielding 6.1 percent. Earnings are due Aug. 5. Buy TGP below $41.

Vanguard Natural Resources (Nasdaq: VNR) has been unfairly discounted simpoly because it shares the upstream MLP space with Linn, slumping nearly 9 percent in the last month before recouping more than half that loss today. As noted in Best Buys, VNR has been much more conservative in its borrowing and capital spending, and does not appear to be on short-sellers’ radar. Buy VNR below $28.


Stock Talk

David Samuels

David Samuels

Late call on LINE encourages subscribers to sell and incur significant loss with facts of value dispute favoring LINE as publicly recognized by several upgrades today. Would have probably best have been designated as HOLD at this point.

Richard Wolfson

Richard Wolfson

What can you tell me re the news that Spectra is considering a competitive offer to that made by ETE for Wmb?

Igor Greenwald

Igor Greenwald

Repeating my reply to a similar question on Williams: Omens are looking pretty good for a sale based on a Reuters story Friday identifying Spectra Energy as another bidder and noting late August deadline for final bids. My personal take is that Spectra will never be able to credibly outbid Energy Tranfer Equity, as its financial flexibility and equity would be far less attractive to the Williams decisionmakers.

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