Energy MLP's had an ugly May and are down for the year on average now. This is first time the sector has underperformed the S&P in many years and the pullback is providing income investors a good entry point. I particularly like the larger MLP's which should be able to maintain access to the financial markets better than their smaller cousins should the credit markets be upended by Europe. One I like here is Plains All American Pipeline (PAA) that is approaching short term technical support and just had its first insider buying in 2012.
"Plains All American Pipeline engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquid petroleum gas products in the United States and Canada. The company operates in three segments: Transportation, Facilities, and Supply and Logistics." (Business description from Yahoo Finance)
7 reasons PAA should be a core holding for income investors at under $79 a share:
- A director made a $400k purchase in May, it was the first insider buy in at least six months.
- Large energy MLP's such as PAA and Enterprise Products Partners (EPD) should hold up better in a volatile market than their smaller brethren according to recently released take by Credit Suisse.
- The company has a solid balance sheet, a low beta (.49) and yields a robust 5.3%.
- PAA is selling near the bottom of its five year valuation range based on P/E and P/CF.
- S&P has a "Buy" rating and a $90 price target on the stock and Credit Suisse has an "outperform" rating and a $91 price target on PAA.
- PAA has easily beat earnings estimates each of the last four quarters, the average beat over consensus during that time span has been 15%
- The stock has good short term technical support at the $77 level (See Chart)
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PAA over the next 72 hours.