- Ned Davis' Warren Pies, in a Barron's Roundtable, is cautious on the sector as it will be forced to roll over debt into a higher rate environment. More bullish, Yorkville's James Hug reminds MLPs performed just fine in 5 of the 6 rising rate periods over the past two decades, and Tortoise Capital's James Mick says there isn't a lot of floating rate risk - 80% of MLP debt is fixed-rate.
- Mick also notes rates are rising not from inflation, but because the economy is improving, and this should mean more business. His favorite pipeline player is Sunoco Logistics (SXL), which has a big backlog of work to transport oil and gas from shale projects. Two other MLPs he owns have consistently boosted their distributions while maintaining reasonable coverage ratios - Magellan Midstream (MMP) and Enterprise Products (EPD)
- Some newer MLPs focus on "upstream" assets like exploration and production, meaning less reliable revenue and payouts. Hug likes Emerge Energy Services (EMES) as a pure play on the growth in fracking, and CVR Refining (CVRR) which gets its crude from Bakken and Canada at a discount to WTI. Pies urges caution, reminding non-infrastructure MLPs rely heavily on acquisitions for their distributions and are dependent on oil and gas prices.
- Two other Hug picks are notable for their high coverage ratios and low leverage - Access Midstream (ACMP) and Enterprise Products (EPD).
- The bearish Pies remains a long-term bull thanks to potential growth - he notes just 17% of crude oil coming out of North Dakota is transported by pipeline.
- Relevant ETFs: AMJ, AMLP, MLPG, MLPI, MLPN, MLPW, MLPS, YMLP, MLPA, EMLP, AMU, IMLP, MLPJ, ATMP, YMLI.
at CNBC.com (Nov 16, 2014)