• ARP added to Aggressive Portfolio; buy below $23 (see Best Buys)

Crosstex Energy (Nasdaq: XTXI) has moved a step closer to consolidating the merger of its midstream interests with those of Devon Energy (NYSE: DVN) in a new master limited partnership. The waiting period imposed by a federal law — the Hart-Scott-Rodino Antitrust Improvements Act of 1976 – has expired, which means the companies can proceed with their plans.

The combination is expected to close in the first quarter of 2014. Crosstex Energy  owns the general partner interest, the incentive distribution rights and a portion of the limited partner interests in Crosstex Energy LP (Nasdaq: XTEX),  an integrated midstream energy partnership headquartered in Dallas that operates approximately 3,500 miles of natural gas, natural gas liquids and oil pipelines.

Third-quarter performance was strong. Distributable cash flow was $32.8 million for the quarter, an increase of approximately 21 percent from the third quarter of 2012. Crosstex announced a $0.01 increase in the distribution and the dividend to $0.34 per unit and $0.13 per share. 

The XTXI share price jumped from around 20 in mid-October to 35 in late December on news of the Devon merger, which will affiliate Crosstex’s midstream operations with the expanding acreage of one of the leading drillers in the Mid-Continent region. Buy XTXI below $37.

CVR Refining (NYSE: CVRR) seems poised for a turnaround. The partnership and its top stakeholder, CVR Energy (NYSE: CVR), had some tough times in 2013 but should enjoy a better 2014.

Among the difficulties was the 53-day shutdown of  CVR Refining’s plant in Coffeyville, Kansas, which substantially reduced earnings. The refinery with a  capacity of 115,000 barrels per day is the larger of the two operated by the partnership, so the shutdown really hurt.

But with the Coffeyville facility back on line and crude differentials widening, the sky looks brighter. CVRR will be able to purchase crude oil at a lower price for the next few months as the differential expands, which should boost its margins.

CVRR has lost more than a third of its valuation since topping out above $35 in March, and is overdue for a rebound. The third quarter distribution was 30 cents per unit, but over the last three quarter CVRR has distributed $3.23 per unit, so that even if the Q4 distribution merely matches the last quarter’s, CVRR will have yielded 15.6 percent over the last year in a variety of market conditions. Buy CVRR below $26.

Energy Transfer Equity (NYSE: ETE) made a number of important moves just before Christmas. On Dec. 23 it announced that the board of directors of its general partner has approved a series of measures to continue ETE’s growth into 2014, including a two-for-one split of the partnership’s outstanding common units and a $1 billion buyback program.

In addition, the partnership committed to purchase $400 million of Regency Energy Partners (NYSE: RGP) common units as part of the consideration for Regency’s $1.3 billion acquisition of the midstream business of Eagle Rock Energy Partners (Nasdaq: EROC).

The unit price has risen 16.5 percent since Nov. 19, when Energy Transfer detailed its plans for the development of the Lake Charles LNG export hub. It would take a 9 percent pullback to make it a buy again for us, for now. Buy ETE on dips below $74.

Crestwood Midstream Partners (NYSE: CMLP), which merged with Kansas City-based Inergy in October, is telling investors that it expects adjusted earnings before income tax, depreciation and amortization to increase about 34 percent in 2014, to approximately $500 million.

The positive expectations are driven by Crestwood’s operations in the Marcellus Shale, Bakken Shale and Powder River Basin/Niobrara Shale areas. Crestwood says it will invest about $400 million in growth capital in 2014 to boost gathering, compressing and distribution capacity in those areas.

The share price is one of the more volatile in the portfolio, ranging from 20 to 24.50 in the last few months. But the long-term prospects  for the partnership appear to be bright. Buy CMLP below $25.

EQT Midstream Partners (NYSE: EQM) released its 2014 financial and capital expenditure forecast on Dec. 18. The partnership expects to distribute $2.14 per unit in 2014, a 29 percent increase from the payout in 2013 and a prospective yield of 3.6 percent at the current share price.  

Adjusted EBITDA is expected to be $170-$175 million and distributable cash flow is expected to be $148-$153 million, enough to cover the projected distribution with a coverage ratio of 1.1-1.5x. The partnership forecasts capital expenditures of $80-$85 million in 2014.

A day earlier, EQT entered into two separate agreements with Antero Resources (NYSE: AR) for firm transportation services on the Equitrans transmission system. Each agreement will ultimately provide 100 billion British thermal units (BBtu) per day of firm transmission capacity on the transmission system for a combined total of 200 BBtu per day. As part of the agreement, the partnership expects to spend approximately $55 million on two separate transmission expansion projects in northern West Virginia. EQT will spend $26 million on a west-side expansion that will add 100 BBtu per day of transmission capacity and is expected to be in full service by year-end 2014.

The unit price has risen 18.7 percent since Oct. 17, the last time it closed below our buy target. The yield’s too modest to justify a raise at this time. Buy EQM on any dips below $51.

Kinder Morgan (NYSE: KMI) closed a disappointing year on an optimistic note, rallying 10 percent since Dec. 16. It was helped by the disclosure that Chairman and CEO Richard D. Kinder spent $27.6 million on Dec. 17 and 18 to increase his $8.15 billion stake in the company. It was Kinder’s first purchase since September, shortly after the small research shop Hedgeye attacked Kinder Morgan’s accounting and business prospects.

KMI has other well-heeled defenders as well, among them Jody LaNasa of the $1.5 billion Serengeti Asset Management hedge fund. In an investment presentation last month, the Goldman Sachs alum called KMI a “best-in-class energy company with irreplaceable assets.” He especially likes the $40 KMI warrants expiring in 2017, believing they could more than triple in value over the next four years.

We too believe the fundamentals are in place for KMI to deliver superior returns once investor skepticism dissipates. But the stock still needs to prove last week’s uplift was a genuine turning point before we’d recommend buying more of it for the Conservative Portfolio. Continue to hold KMI.

MarkWest Energy Partners (NYSE: MWE) has been on the defensive ever since reporting a distributable cash flow shortfall for the third quarter in mid-November. By the time the partnership announced the sale of 5 million common units on Dec. 17, the unit price had dropped 16 percent in little more than five weeks. The valuation has since rebounded 5.5 percent, attempting to recapture the 200-day moving average.

It may have helped that on Dec. 19 the partnership announced plans for a new joint venture to stabilize gas condensate produced in five Ohio counties, starting with an agreement with Gulfport Energy (Nasdaq: GPOR). The deal underscored MarkWest’s strong position in the rapidly developing Utica Shale.

Distributable cash flow is forecast to increase at least 24 percent this year, though the unit count is likely to keep rising as well. The current yield of 5.1 percent could get smaller via a price increase if the partnership can show that the recent bad quarter was a one-time aberration. We expect that it will. Buy MWE below $77.

Navios Maritime Partners (NYSE:NMM) has enjoyed a very good run, rising almost 20 percent in a little over two months. We’re glad we upgraded it to a Buy in September and raised the price target last month to encourage additional purchases.

But the jump probably has more to do with the overall surge in leasing rates by shippers than with anything specific  to NMM, which is an international owner and operator of dry bulk carriers formed by Navios Maritime Holdings (NYSE: NM), a seaborne shipping company.

The Baltic Dry Index representing global leasing rates jumped 56 percent between Nov. 25 and Dec. 12., though it has since pulled back 13 percent from that three-year high.

The current unit price puts the yield at 9.5 percent based on the last year’s distributions, which could rise sometime in 2014 if the shipping news remains upbeat.

The partnership recently announced that it has taken delivery of a pair of container vessels, the Hyundai Singapore and the Hyundai Hong Kong. These ships were built in 2006 and have a capacity of 6,800 20-foot equivalent units.  Navios will add three more such ships under long-term charters this year as part of its welcome push into container shipping. Navios now has a fleet of 25 ships, with five more slated for delivery in 2014.

Some have attributed the rebound in shipping charter rates to a slowdown in the the growth of the global cargo fleet and increased exports of coal, grain and iron ore, especially to China and India. Navios Maritime Partners  should continue to profit from this trend in 2014. Buy NMM on dips below $17.70.

Regency Energy Partners (NYSE: RGP) has rallied 7 percent in two weeks, largely on the strength of its Dec. 23 announcement of two more acquisitions on the heels of the $5.6 billion buyout of Appalachia-focused gatherer PVR Partners (NYSE: PVR) announced in October. The Growth Portfolio holding will spend $1.3 billion on the midstream assets of Eagle Rock Energy Partners (Nasdaq: EROC), one of the MLP sector’s biggest 2013 busts. It will also buy Hoover Energy Partners’ midstream assets for $290 million.

The purchases expand Regency’s footprint in the Texas panhandle, east and west Texas and are adjacent to Regency’s own gathering systems, promising increased efficiencies of scale and other cost savings.

The purchases will be financed with debt and the issuance of Regency units worth nearly $700 million,  roughly 13 percent of the current market capitalization, with general partner Energy Transfer Equity (NYSE: ETE) buying $400 million.

Regency expects the acquisitions to be immediately accretive to distributable cash flow and in fact now promises to raise its distribution by 6 to 8 percent next year. Even the lower bound of that forecast would exceed aggregate per-unit distribution growth over the last five years.

So why are we not raising the Hold rating assigned to Regency in the wake of the PVR buyout? Because, aside from the usual integration risks, debt leverage remains high and the new unit issuance to finance the latest deal with disproportionately benefit Energy Transfer Equity via the latter’s incentive distribution rights. If Regency’s price rallies further, we will be tempted to switch out of the name entirely and into more Energy Transfer Equity. For now, continue to hold RGP.

Vanguard Natural Resources (Nasdaq: VNR) has inked an agreement to acquire natural gas and oil properties in the Pinedale and Jonah fields of Southwestern Wyoming for a purchase price of $581 million from an unnamed seller.

The properties being sold consist of approximately 87,000 gross acres (14,000 net acres), which are currently producing approximately 113.4 million cubic feet equivalent (Mmcfe) per day, consisting of 80 percent being natural gas, 4 percent oil and 16 percent natural gas liquids (“NGLs”).

The acquisition marks an important change in Vanguard’s strategy. For the first time in its history, it will be allocating capital to drilling wells on these acquired properties with the goal of increasing cash flow rather than merely maintaining it.

If the deal closes at the end of January as expected, reserves and daily production will increase approximately 80 percent and 55 percent respectively, and Vanguard will add an inventory of approximately 970 proved undeveloped drilling locations.

Like most upstream MLPs, Vanguard had a fairly volatile ride in 2013, but its new growth opportunities may smooth the path ahead for investors. Buy  VNR below $28.

Williams (NYSE: WMB) shares have advanced 11 percent since Dec. 13, aided by the disclosure of a 5.3 percent activist stake (8.8 percent including swaps and options) by hedge funds Corvex Management and Soroban Capital. Bioth funds have made Williams their top holding before engaging in discussions with management about ways to maximize shareholder value.

The “constructive” talks revolve around fixing “recent operational and financial missteps,” with the goal of Williams “participating in strategic combinations” or, more immediately, giving the funds seats on the board of directors, according to the firms’ securities filing. Corvex and Soroban aren’t used to taking No for an answer. The former was founded by a disciple of Carl Icahn and the latter by the former co-CEO of the TPG-Axon hedge fund.

Jody LaNasa and his $1.5 billion Serengeti Asset Management are also big fans of our Growth Portfolio recommendation, arguing that the strong dividend growth shown by the  midstream operator will reward investors with compounding annual returns of  20 percent or more in the coming years. The unit price may not remain below our buy target much longer. Buy WMB below $39.