What's next for MLPs?

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.


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Comments (12)
  • Archman Investor
    , contributor
    Comments (3383) | Send Message
    I do not own any MLP's at this time.


    I do find it "interesting" that Barron's and The WSJ happen to run negative pieces on MLP's at the same time this weekend. Yes we all know they are run and owned by the same publisher, however I think they need to make it a "bit" less obvious when they tout their hit pieces on certain sectors. It is getting a bit laughable.
    10 Aug 2013, 09:05 AM Reply Like
  • Ajayyy
    , contributor
    Comments (326) | Send Message
    "he notes just 17% of crude oil coming out of North Dakota is transported by pipeline."


    How is the remaining transported? Who is building pipelines there?
    If pipelines keep growing will the railways take a hit?
    10 Aug 2013, 10:03 AM Reply Like
  • Mike Maher
    , contributor
    Comments (2867) | Send Message
    The Barrons article isnt a hit piece on MLPs, two of the ppl they interviewed like them, one did not. Read the article.
    10 Aug 2013, 06:50 PM Reply Like
  • Uncle Pie
    , contributor
    Comments (4321) | Send Message
    The Barron's piece on MLPs was pretty useless. They didn't even discuss the issue of IDRs (incentive distribution rights) whereby the general partners get a bigger slice of the profits than the limiteds (making an investment in a GP like ETE or KMI a better deal) nor did they tackle any of the tax issues, which are critical. Having been an MLP investor for decades, it's clear that interest rate fluctuations are about the last thing you need to worry about.
    Now that Rupert Murdoch has acquired Barron's and the Wall Street Journal and merged them into his Fox News/British tabloid empire, most of the better writers and editors have departed.
    Time to move on.
    10 Aug 2013, 01:30 PM Reply Like
  • alschroed
    , contributor
    Comments (1622) | Send Message
    AJAY They are using trucks and railroads to carry the oil.
    10 Aug 2013, 02:14 PM Reply Like
  • OptionManiac
    , contributor
    Comments (3506) | Send Message
    Tanker railcars are snatched up a soon as they are built.
    10 Aug 2013, 05:14 PM Reply Like
  • Ajayyy
    , contributor
    Comments (326) | Send Message
    Are pipelines going to challenge their business (railcar makers and railway companies) or can both exists side by side?
    Thanks for the reply!
    10 Aug 2013, 06:53 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2867) | Send Message
    its a market by market project by project thing. Pipelines are the cheapest, safest way to transport oil, rail is more of a stop gap measure.
    10 Aug 2013, 11:01 PM Reply Like
  • Be Here Now
    , contributor
    Comments (6367) | Send Message
    Rail is more flexible, can reach more places. Pipelines are cheaper. It depends on the situation.
    11 Aug 2013, 12:26 PM Reply Like
  • Glucose
    , contributor
    Comments (244) | Send Message
    Whats next for MLPs??? buy puts i think.
    10 Aug 2013, 08:46 PM Reply Like
  • Ajayyy
    , contributor
    Comments (326) | Send Message
    Yah, most of them carry a high payout risk if shorting and puts is a much safer option.
    But I don't think it's indiscriminate MLP put buying but rather finding weak MLPs. This is when we can weed out good from bad.
    With the number of total MLPs now variety is not a problem.
    10 Aug 2013, 09:49 PM Reply Like
  • Hillbilly Stock Star
    , contributor
    Comments (747) | Send Message
    I like $QEPM ( Bakken Mid-Stream) small long.
    11 Aug 2013, 05:52 PM Reply Like
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