Atlas Pipeline Is A High-Yielding, Beneath The Radar Stock

| About: Atlas Pipeline (APL)

Oil is up right now and is going higher. T. Boone Pickens, the famous oil man turned hedge fund manager, predicts that oil will average between $110 and $120 a barrel this year. The driving forces behind that growth include fear over the sustainability of the world's oil supply, magnified after Iran cut off exports to England and France, and is expected to cut off more countries in Europe soon. There is also the July 1st embargo upcoming, and that is to say nothing of the weakness of the US dollar. At the same time, natural gas prices are at near record lows.

It may read like a tragedy, but we see opportunity in these events; oil companies are going to benefit from the surge in oil prices now, and they will surge later when the market corrects on natural gas prices. Looking for good investment opportunities in the oil and gas industry, we considered the big players - like Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP) and ExxonMobil (NYSE:XOM) - but we think that there is more opportunity in those stocks that are beneath the radar, those companies that pay high dividends and have high earnings growth estimates, but are priced low relative to their future earnings.

One of the companies we came up with is Atlas Pipeline Partners (NYSE:APL).

Atlas Pipeline is a $1.99 billion market cap pipeline oil and gas company based in Moon Township, Pennsylvania. It is involved in natural gas gathering and processing in the Anadarko and Permian Basins. It also has significant operations in Appalachia. Atlas reported its fourth quarter 2011 performance on February 21. Its earnings fell short of analyst estimates, coming in at a 15 cents loss compared to expectations of 44 cents, making for a negative 59 cents surprise. Atlas was, however, able to beat analysts' estimates about its revenue, coming in at $330.22 million versus revenue estimates of $326.48 million.

Atlas Partners recently traded at $37.06 a share with a mean one-year target estimate of $42.33 a share. In addition to this upside, the company pays a $2.20 dividend (5.80% yield) on a low payout ratio of 31.00%. Atlas Partners' dividends have been somewhat mixed over the years, ranging from 15 cents on May 7, 2009 to a high of 96 cents a share in August and November 2008, but its trailing dividend remains strong at $1.96 (5.20% yield),and we see no reason to doubt that it will continue to pay.

In addition to the low payout ratio, Atlas Partners boasts debt that is less than 20% of its market capitalization, and has returned over 30% in the last 52 weeks, versus 4.69% for the S&P 500. Atlas Partners also has strong earnings. The company's earnings have increased by almost 10% a year on average over the last five years. If analysts are correct, the company's earnings will grow by an even greater 12.00% a year on average over the next five years, compared to expectations of just 11.50% for its industry. Atlas Partners is also priced low at 15.57 times its forward earnings.

Atlas Partners looks even better when compared to other companies in its industry, like ONEOK (NYSE:OKE) and EQT Corp (NYSE:EQT). ONEOK is priced higher, with a forward P/E of $19.64 and pays a lower $2.44 dividend (2.90%) on a payout ratio of 64%. Analysts estimate ONEOK's earnings will grow by just 9.99% a year on average over the next five years. EQT is also priced higher than Atlas Partners, with a forward P/E of 17.10. While it does have a high earnings growth estimate of 29.11% per annum on average over the next five years, it pays an even lower dividend than ONEOK at just 88 cents (1.60% dividend yield) on a 28% payout ratio.

We think Atlas Partners is a steal at these prices.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.