I continue to find value in the energy sector despite the market being near record highs (S&P and Dow Jones). I particularly like the high yielding Master and Limited partnership space within the energy complex. These entities provide significant income as well as capital appreciation potential. In this low yield environment within a fairly/slightly overvalued market; they provide solid value at current levels. Here are two of these plays that provide high yield, own long-lived assets and have attractive valuations. Both of which recently were highlighted as "Buys" in the upstream energy space by analyst firm Wunderlich.
QR Energy L.P. (NYSE:QRE) is a master limited partnership that develops and produces oil, natural gas and natural gas liquids from a variety of properties in Texas, Mid-Continent and Gulf Coast regions. It has a portfolio of stable, long-lived assets. The company went public in late 2010 and has done around $1.2B in accretive acquisitions since then, ~two thirds of them drop downs from its sponsor, Quantum Resources Fund.
One of the most appealing parts of the story to this high yielding E & P concern is its shifting production mix. The company had 57% of production coming from oil at the end of the first quarter. This is up from 37% in the same period last year. Its total oil & liquids production stands at 69% of its overall production currently.
The entity also provides a huge distribution yield (10.8%). Revenue growth looks like it should clock in at over 20% for both FY2013 & FY2014 partly as a result of significant increase in oil production. After posting profit of under 20 cents a share in FY2012, QR Energy is tracking to almost $1.20 a share in the black this fiscal year. Analysts have another 10% earnings gain priced in for FY2014 currently as well.
Breitburn Energy Partners (BBEP) is an E&P concern organized as a master limited partnership and the entity came public in 2006. The company has mature long-lived reserves and has grown through acquisitions as well as organic growth.
The shares yield over ten percent (10.1%) and the company has consistently and incrementally raised its payout since emerging from the financial crisis. Revenue growth should clock in at over 65% this fiscal year and analysts believe another ~25% gain in FY2014 is in order.
After losing money in FY2012, the company should post 70 cents a share of earnings in FY2013. Analysts have $1.10 in EPS pencil in for FY2014. The shares are priced just over book value.
The company just announced it will raise additional funds by issuing 15mm new shares. These proceeds will be used to retire debt. It should be noted that raising additional capital to expand or retire debt are a core part of this type of entity. In addition, insiders have been net buyers of the shares in the last six months, which is a vote of confidence by my perspective. I added more shares to my position today.
Disclosure: I am long BBEP, QRE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.