Discipline in the Face of Momentum

Conservative Portfolio holding Enterprise Products Partners LP (NYSE: EPD) recently boosted its distribution for the 30th consecutive quarter. Even during the nadir of the credit crunch and the 2007-09 recession, the blue-chip master limited partnership (MLP) continued to boost its payout to unitholders at a steady, dependable rate quarter after quarter.

This consistent execution is the hallmark of great companies that consistently build wealth for investors: Units of Enterprise Products Partners have returned more than 300 percent over the past decade, while the S&P 500 is up only 50 percent over the same period.

That being said, no stock is a buy at any price. Enterprise Products Partners’ stock has been on a tear in recent months, surging from less than $40 per unit in late 2011 to more than $50 per unit at the end of February. After this recent rally, the stock yields about 4.7 percent–close to the lowest rate of return in its trading history. Units of Enterprise Products Partners trade well above our buy target of $45.

We continually reevaluate and revise our buy targets to ensure that yields adequately compensate for the risks associated with a particular MLP.

Enterprise Products Partners is among the safest names in the Conservative Portfolio. However we can’t justify raising the buy target, especially when bouts of volatility in the stock market–a distinct possibility with the EU muddling along and a US presidential election on the horizon–will likely furnish investors with an opportunity to buy the stock at a cheaper perice.

Many of our favorite MLPs appear overbought after the recent rally; don’t be tempted to chase these names above our buy targets. You should also consider taking advantage of the run-up to take some profits off the table in any MLP that trades more than 10 percent above our buy target (see table).


Source: MLP Profits

Consider selling between 30 percent and 50 percent of your stake in these holdings and allocating the proceeds to names that trade below our buy targets. We’ve also added four new picks to the model Portfolios that trade at attractive valuations.

In This Issue

The Stories

1.
Earnings season for our Porftolio holdings has come and gone. Here’s our take on the final batch of quarterly results. See Fourth-Quarter Report Card.

2. With so many of our Portfolio holdings trading above our buy targets, readers have limited options to put new money to work. However, you dont have to wait for a pullback to buy the four stocks we added to the model Portfolios in this issue. See New Additions.

3. Investors often ask for our take on the highest-yielding MLPs in our coverage universe. Here’s an in-depth analysis of the five MLPs with the (in)distinction of sporting the highes yields. See The Search for More Yield.

The Stocks

DCP Midstream Partners LP
(NYSE: DPM)–Buy < 40 in Growth Portfolio
Legacy Reserves LP (NSDQ: LGCY)–Buy < 32 in Aggressive Portfolio
Linn Energy LLC (NSDQ: LINE)–Buy < 40 in Aggressive Portfolio
Penn Virginia Resource Partners LP (NYSE: PVR)–Buy < 29 in Aggressive Portfolio
Targa Resources Partners LP (NYSE: NGLS)–Buy < 35 in Growth Portfolio
Teekay LNG Partners LP (NYSE: TGP)–Buy < 41 in Growth Portfolio
Buckeye Partners LP (NYSE: BPL)–Buy < 65 in Conservative Portfolio
El Paso Pipeline Partners LP (NYSE: EPB)–Buy < 38 in Conservative Portfolio
Mid-Con Energy Partners LP (NSDQ: MCEP)–Buy < 26.50 in Aggressive Portfolio
Eagle Rock Energy Partners LP (NSDQ: EROC)–Buy < 12 in Growth Portfolio
Oxford Resource Partners LP (NYSE: OXF)–SELL in How They Rate
Inergy LP (NYSE: NRGY)–SELL in How They Rate
Niska Gas Storage Partners LLC (NYSE: NKA)–SELL in How They Rate
Capital Product Partners LP (NSDQ: CPLP)–Hold in How They Rate
Ferrelgas Partners LP (NYSE: FGP)–SELL in How They Rate

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