Leawood, Kansas-based Tortoise Capital Advisors LLC, with $7.4 billion in 13-F assets, per its latest Q4 filing, is recognized as a leader in energy infrastructure MLP investment management services to individual and institutional investors. It specializes in investing in publicly-traded energy infrastructure investments, primarily in MLPs that provide essential services in the energy industry by transporting, processing, distributing and storing crude oil, refined products and natural gas. Since revenue from these companies is based primarily on volumes, with relatively low direct commodity price risk, they are able to deliver to their investors a high level of total return, at low commodity risk, and with an emphasis on reliable distributions.
The fund holds a diversified portfolio of 90 positions, and is focused on the oil & gas sector that accounts for almost its entire portfolio. About 60% of its portfolio is in mid-caps, another 30% is in large-caps, and the remaining 10% sector is in small-cap equities.
The following are Tortoise's most bullish picks in the oil & gas sector that are also trading at a discount compared to their peers (see Table):
Chesapeake Midstream Partners LP (CHKM) and Chesapeake Energy Corp. (CHK): CHKM is an MLP principally focused on natural gas gathering, providing gathering, treating and compression services to its primary customers, corporate parent Chesapeake Energy Corp. and Total SA (TOT), and other third-party producers under long-term, fixed-fee contracts. Tortoise added $60 million in Q4 to its $114 million prior quarter position in CHKM, and it also added a new $3 million position in CHK.
CHKM trades at a current 18.8 P/E and 1.9 P/B compared to averages of 19.6 and 2.6 for its (mid-cap) peers in the oil & gas transportation & pipeline group, and it has a dividend yield of 5.4% versus the 4.9% average for the group. Its corporate parent CHK trades at 8-9 forward P/E and 1.0 P/B compared to averages of 15.3 and 5.2 for its peers in the U.S. oil & gas exploration & production group.
Sunoco Logistics Partners LP (SXL): SXL is an MLP formed by oil & gas refining & marketing company Sunoco Inc. (SUN) to own and operate a geographically diverse and complementary group of refined product and crude oil pipeline and terminal facilities. Tortoise added $203 million in Q4 to its $110 million prior quarter position.
SXL reported its Q4 a month ago, on January 26th, missing earnings and beating revenue estimates; its shares trade at 16-17 forward P/E and 4.1 P/B compared to averages of 19.6 and 2.6 for its (mid-cap) peers in the oil & gas transportation & pipeline group, and it has a dividend yield of 4.0% compared to the 4.9% average for the group. Of the fourteen analysts that cover the stock, two rate it at buy/strong buy, nine at hold, and three at underperform/sell; and they have an average price target of $37 on the stock, compared to the current $41 price.
Plains All American Pipeline (PAA): PAA is a MLP engaged in the transportation, storage, terminalling and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products in the U.S. and Canada. Tortoise added $38 million in Q4 to its $334 million prior quarter position in the company.
PAA trades at a discount 17-18 forward P/E and 2.4 P/B compared to averages of 18.2 and 2.2 for its (large-cap) peers in the oil & gas transportation & pipeline group, while earnings are projected to fall from $5.24 in 2011 to $4.68 in 2013. Also, it pays a dividend yield of 5.0% compared to the 5.6% average for the group. Of the sixteen analysts that cover the stock, twelve rate it at buy/strong buy, three at hold, and one at underperform/sell; and they have an average price target of $83 on the stock, at par with the current price.
Centerpoint Energy Inc. (CNP): CNP provides electricity transmission and distribution, natural gas distribution and sales, interstate pipelines and gathering operations to customers in AR, IL, IA, KS, LA, MN, MS, MO, OK, TX, and WI. Tortoise added $14 million in Q4 to its $1 million prior quarter position. CNP has more than doubled from the 2008/09 lows, and is consolidating at almost ten-year highs, up almost 20% in the past year. It trades at a discount 15-16 forward P/E compared with the 19.4 average for the electric utilities group, while earnings are projected to increase modestly from $1.12 in 2010 to $1.17 in 2012. Furthermore, it also has an attractive dividend yield of 4.3% versus the 3.7% average for the group.
Spectra Energy Corp. (SE): SE is engaged in the gathering, processing, transmission, storage and distribution of natural gas in the U.S. and Canada. Tortoise added $26 million in Q4 to its $1 million prior quarter position. SE trades at a discount 15-16 forward P/E and 2.3 P/B compared to averages of 18.2 and 2.2 for its (large-cap) peers in the oil & gas transportation & pipeline group, and it has a dividend yield of 3.5% compared to the 5.6% average for the group.
Buckeye Partners LP (BPL): BPL is an MLP engaged in wholesale distribution and transportation of refined petroleum products via a 5,400-mile pipeline system. Tortoise added $43 million in Q4 to its $347 million prior quarter position. BPL trades at 16-17 forward P/E and 2.3 P/B compared to averages of 18.5 and 2.6 for its (large-cap) peers in the oil & gas transportation & pipeline group, and it has a dividend yield of 6.8% compared to the 5.6% average for the group. Of the thirteen analysts that cover the stock, seven rate it at buy/strong buy, four at hold, and two at underperform/sell; and they have an average price target of $69 on the stock, above the current $60 price.
Other major buys by Tortoise in Q4 that are not under-valued based on a comparison to their peers, at least based on the typical earnings measure, include (see Table):
- Williams Companies (WMB), engaged in the exploration, production, gathering, processing and transportation of natural gas mainly in the U.S., in which it added $28 million to its $1 million prior quarter position;
- Kinder Morgan Inc. (KMI), a provider of energy transportation and storage services in North America, in which it added $35 million to its $21 million prior quarter position; and
- Kinder Morgan Energy Partners LP (KMP), an MLP engaged in the ownership and management of three pipeline systems used to transport natural gas liquids, refined petroleum products and carbon dioxide, in which it added $25 million to its $86 million prior quarter position.
The following are the stocks that Tortoise is most bearish about based on their Q4 selling activity (see Table):
- Inergy LP (NRGY), a Master MLP engaged in retail and wholesale propane distribution to residential, commercial, industrial and agricultural customers, primarily in the U.S. and Canada, in which it cut $14 million from its $70 million prior quarter position;
- Enterprise Products Partners (EPD), an MLP engaged in transportation, gathering, processing and storage of natural gas, natural gas liquids and crude oil, in which it cut $14 million from its $659 million prior quarter position; and
- Energy Transfer Equity LP (ETE), owner of a diversified portfolio of energy assets, including natural gas gathering and transportation pipelines, natural gas treating and processing assets, and three natural gas storage facilities, in which it cut $12 million from its $126 million prior quarter position.
For those interested, Tortoise Capital Advisors offers six publicly-traded closed-end funds, including Tortoise Energy Infrastructure Corp. (NYSE: TYG), Tortoise Energy Capital Corp. (NYSE: TYY), Tortoise North American Energy Corp. (NYSE: TYN), Tortoise Capital Resources Corp. (NYSE: TTO), Tortoise Power and Energy Infrastructure Fund, Inc. (NYSE: TPZ) and Tortoise MLP Fund, Inc. (NYSE: NTG).
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