One of my weekend traditions is reading through Barron's. I have found the magazine to provide several winning investment ideas a quarter on a consistent basis. This week an interview with Charles Lieberman, the founder of Advisors Capital Management, caught my eye. His strategy aligns well with what I use to select positions for the income portion of my portfolio. In particular, I liked the two energy MLPs he chose to profile in the article. Both seem like good yield plays on the continued expansion of domestic energy production.
BreitBurn Energy Partners L.P. (BBEP) engages in the acquisition, exploitation, and development of oil and gas properties in the United States. The company's properties include natural gas, oil, and midstream assets.
4 reasons to pick up BBEP at $20 a share:
- The shares yield 9.2% and the company has increased distribution payouts by 25% over the last two-and-a-half years.
- BBEP is priced at just 2% over book value and 10x operating cash flow.
- Breitburn has hedged most of its production three to four years out and is moving production to oil from gas. Both efforts should result in higher and most stable cash flow going forward.
- Revenues are ramping up nicely. BBEP had just less than $400mm in sales in FY2011 and is tracking to a little above $440mm in revenues in FY2012. Analysts expect a huge increase in revenues to approximately $600mm in FY2013.
Energy Transfer Partners, L.P. (ETP) owns natural gas midstream, and intrastate transportation and storage businesses in the United States.
4 reasons ETP is a good income pick up at just $45 a share:
- ETP yields a robust 7.8% yield. It is priced at just 10.5x trailing earnings.
- It has a ridiculously low five-year projected PEG (0.51) for a high yielder.
- The Sunoco acquisition will more than double revenues in FY2013 and expands the company's footprint into the oil and natural gas liquids space.
- ETP has underperformed its brethren by some 40% over the last two years mainly because distribution payouts have remained stable. The recent acquisition should be accretive to cash flow and earnings. This bodes well for future distribution growth which push the company to make up for underperformance.
Disclosure: I am long ETP.