Regular readers of my columns know that a good portion of my income portfolio has consisted of high yielding energy MLPs (Master Limited Partnerships) and LPs (Limited Partnerships) for more than a year. They have been very solid performers both on an income and capital appreciation perspective within my portfolio over that time period as the build out of North American energy infrastructure and production growth continues at an impressive pace. These entities have outperformed the S&P by approximately five percent (11.6% versus 6.6%) so far in 2012.
Barron's had an interesting piece from Morgan Stanley Tuesday why this is occurring and is likely to continue:
- Continued recovery from tax fears late in 2012 due to the fiscal cliff talks.
- Pension funds are increasing their allocation to the space and funds are being raised successfully to build out the infrastructure to meet the escalating domestic oil & gas production that has been a theme for going on better than five years.
- The lack of income alternatives as the Federal Reserve keeps pushing through its policies investors into riskier assets.
I believe these entities will offer value and income to investors in 2013. Here are two equities in the space I like at these levels.
Memorial Production Partners, L.P. (MEMP) engages in the acquisition, exploitation, development, and production of oil and natural gas properties.
4 reasons MEMP is a good income pick at $18.50 a share:
- Wunderlich Securities just initiated the shares as a "Buy" with a $22 a share price target. The analyst firm likes MEMP as it "Believes Memorial is an attractive investment due to its high relative yield, total return potential, limited exposure to commodity prices due to its hedging program, and potential dropdowns from its sponsor".
- MEMP yields 11% and has incrementally increased its payouts throughout 2012.
- The five other analysts that cover the shares have a median price target of $21 a share on MEMP.
- The company has more than doubled its operating cash flow since the end of FY2010. MEMP came public in late 2011 and is relatively unfollowed. Consensus earnings estimates have increase significantly for FY2013 over the last three months and analysts project the company will grow revenues by more than 100% in FY2013.
Martin Midstream Partners L.P (MMLP) collects, transports, stores, and markets petroleum products and by-products in the United States Gulf Coast region. The company owns or operates 27 marine shore based terminal facilities and 12 specialty terminal facilities among other assets.
4 reasons MMLP is a good value/yield play at $35 a share:
- MMLP yields almost 9% (8.9%) and more than doubled its payouts in its decade as a public company.
- Numerous insiders have made small but frequent purchases since November.
- Consensus earnings estimates for FY2013 have ticked up over the last month and analysts expect a better than 15% increase earnings increase this fiscal year over FY2012. Revenue growth is also expected to grow at better than 13% rate.
- The company is using divestitures to reduce its exposure to natural gas gathering and processing. Martin will be able to focus more on its oil storage, sulfur services and marine transport businesses which will help to streamline the firm.
Disclosure: I am long MMLP.