Portfolio Action Summary:

• Sell BWP
• TRGP added to Growth Portfolio; buy below $85 (see Best Buys)
• NMM buy below target raised to $17.70 from $15.50 (see Best Buys)
• CVRR buy below target lowered to $26 from $28
• ETE buy below target raised to $74 from $69
• ETP upgraded to Buy below $55
• IEP ripe for profit-taking; sell half of initial position

Editor’s Note: The earnings crush has left 10 partnerships in the recently expanded portfolios without write-ups; they will be covered in next month’s newsletter.

Alliance Holdings GP LP (Nasdaq: AHGP) The unit price declined 3.5 percent over the last month, as the general partner of a coal mining MLP remained the best house on a bad block amid the coal industry’s continuing malaise. (All performance data in this month’s update through Nov. 11.) Still, the partnership AHGP manages, Alliance Resources (Nasdaq: ARLP) managed revenue growth of 5 percent and a year-over-year EBITDA gain of 8 percent, with higher overall production at a lower cost per ton more than offsetting the continuing modest decline in the price of coal. AHGP, in turn, raised its quarterly distribution to $0.8075 per unit, a 2.9 percent increase over the prior quarter and a 12.2 percent hike year-over-year. The new rate works out to a 5.6 percent annual yield at the current year price, especially impressive given the reliably double-digit distribution growth rate, a healthy coverage ratio of 1.55 times and low debt. AHGP is a low-cost low-leverage producer of a commodity that’s poised to rebound as the closure of unprofitable mines curbs supply. Buy AHGP below $68.

Boardwalk Pipeline Partners LP (NYSE: BWP)  This is a partnership with increasingly apparent profitability issues, driven chiefly by the fact that the Midwest and the East have nowhere near the same need for Texas gas now that production from the much nearer Marcellus and the Utica has glutted the regional market. Revenue would have declined on an organic basis excluding the effect of an acquisition, as gas transportation contracts were not renewed or renewed for less. Management estimated the bottom-line impact of this weakness in its core business at $40 million this year and as much again the next. Meanwhile, sponsor Loews (NYSE: L) b has added to the cash drain by converting its class B units into common that will coast Boardwalk an additional $25 million in distributions annually. The Bluegrass Pipeline Boardwalk is marketing in a partnership with Williams (NYSE: WMB) is looking more and more as a defensive measure to replace lost business than as a path to future glory. And it now faces competition that could drive expected returns lower. Plus, increasingly profit-challenged Boardwalk will still need to finance its share of the cost for the Bluegrass. The distribution hasn’t increased in the last six quarters, and while the current 7.6 percent yield might look nice, next year’s distributable cash flow could be “well below” what it will take to keep it steady, Barclays recently noted in downgrading BWP to Underperform. The unit price was down 10 percent on the month, and while it may be overdue for a bounce there’s no sense in sticking around on that basis. As a relatively recent recommendation by my predecessor, BWP shouldn’t impose major adverse tax consequences for those who followed the advice. And there are far better opportunities out there. Sell BWP.   

Crestwood Midstream Partners (NYSE: CMLP) After swallowing Inergy in a recent merger that also combined the two MLPs’ general partners, Crestwood’s management has ambitious expansion plans, starting with the recent $750 million deal for Arrow Midstream that gave it important gathering assets in the Bakken shale. The oil and gas gatherer is also expanding aggressively in the Marcellus and the Niobrara, and growth in these three shale basins is being counted on to support a growth of 6 percent or so at the minimum in next year’s distribution. But in the meantime increased merger costs, interest expenses and equity issuance meant that the latest half-cent-per-unit hike in the quarterly distribution left the pro forma coverage ratio for the prior 12 months short at 0.93 times. Management expects cash flows to improve next year as new projects come on line, and they will have to justify the enthusiastic equity issuance that’s driven down the unit price in the here and now.  The unit price had dropped 9 percent in a month before bouncing on Nov. 12. But the current yield is a healthy 7.7 percent and the experienced, ambitious management deserves the benefit of the doubt. Buy CMLP below $25.

CVR Refining (NYSE: CVRR) The refiner’s unit price is just about where it was a month ago, but it burned a lot of fuel driving in circles. Shares rallied 21 percent over eight trading session in mid-October as wider crude spreads promised stronger margins, before returning to lifetime lows after the partnership once again cut its distribution forecast. The quarterly distribution fell all the way to 30 cents a unit, less than half of what was implied by the midpoint of the prior (and already once reduced) annual forecast. One of the partnership’s two refineries suffered an extended outage during the quarter and dismal refining margins also hurt. The new distribution forecast for $3.35 to $3.70 per unit in 2013 suggests the fourth-quarter payout could drop to as little as 22 cents per unit. Still, this implies a minimum yield of roughly 5 percent should absolutely everything continue to go wrong, and an actual yield of 15 percent based on the minimum 2013 target, averaging current misery with the windfalls from the first half of the year. The partnership’s two mid-continent refineries remain well placed to capitalize on the crude glut in the heartland.  Buy CVRR below the reduced price target of $26.

DCP Midstream Partners LP (NYSE: DPM) The midstream gas gatherer and processor’s unit price hardly budged over the last month, but there was plenty of progress on the bottom line as a new Colorado processing plant came online and gathering volumes in the Eagle Ford basin picked up noticeably. Distributable cash flow more than doubled year-over-year thanks to this year’s $1.5 billion in asset dropdowns from the corporate sponsors, and fully covered a distribution that increased 6 percent in a year’s time. Distributable cash flow is now expected to at least hit the upper end of prior annual guidance. Next year’s distributions should grow a bit faster, boosted by another $1 billion in dropdowns as well as the launch of Marcellus propane exports from a recently acquired Chesapeake Bay terminal. But there is also discontent bubbling below the surface, one of the analysts on the call attributing recent weakness in the unit price to worries that DPM is merely a source of cheap capital rather than a strategic partner for the corporate sponsors. The price of the most recent dropdown was seen by some as too high, he noted. Along the same lines, the activist hedge fund operator Sandell Asset Management has recently urged one of DCP’s corporate sponsors, Spectra Energy (NYSE: SE), to consider divesting its 50 percent stake in DPM, perhaps by merging it with Phillips 66 Partners (NYSE: PSXP), the logistics arm of DPM’s other corporate sponsor, Philips 66 (NYSE: PSX).  In any case, a 6 percent current yield from a distribution that could grow 8 percent next year suggests that higher prices lie ahead no matter how the big picture shakes out. Buy DPM below $51.    

Energy Transfer Equity (NYSE: ETE) the lead partnership of the Energy Transfer family continues its strong recent trend, gaining another 5 percent to a record high. Its latest distribution increase exceeded expectations, increasing 2.7 percent sequentially and 7.6 percent year-over-year, though price appreciation has capped the yield at 3.8 percent. And while distribution coverage remained suboptimal at 0.93x, it should get over 1 in short order as growth at Sunoco Logistics (NYSE: SXL) and Energy Transfer Partners (NYSE: ETP) lifts ETE’s bottom line on the rising tide of incentive distribution rights. Meanwhile, the partnership continues to make progress on plans to export liquefied natural gas from its Louisiana terminal starting in 2019, increased fractionation capacity in Texas and plans to bring mid-continent and Canadian crude down to Louisiana via a converted gas line. The market has caught on that ETE’s best days are still ahead as it maximizes returns on its affiliates’ strategically located pipelines. Meanwhile, the partnership has embarked on a comprehensive and well timed refinancing that should curb interest expenses. This winner’s a keeper, and we’re raising our target to continue building positions. Buy ETE below $74.  

Energy Transfer Partners LP (NYSE: ETP) ETE’s main affiliate continued to lag, surrendering modest late October gains to finish the month flat. But it’s not far off August’s record high, and reached a milestone of its own with the first distribution increase in five years. The new annualized rate of $3.62 per unit represented a 1.3 percent increase over a payout that had remained flat since the first quarter of 2008, and further increases are likely in the coming quarters. The yield has held steady at 6.9 percent, but acquisitions and strong NGL results boosted distributable cash flow nearly 40 percent in a year’s time, improving distribution coverage markedly to 1.14x despite the higher unit count and payout and rising incentive payments to ETE. More changes are in store, with CEO Kelcy Warren declaring on the conference call that ETP is “back in the M&A business” and planning “some very strategic moves” over the next 12 months. As for projects, the affiliated Lone Star joint venture installed its second fractionator at Mont Belvieu, Texas, capable of processing 100,000 barrels on natural gas liquids per day into exportable purity products. ETP is involved in the Lake Charles, Louisiana, LNG export venture as well, and recently agreed to convert one of its gas pipelines to carry Eagle Ford crude to the Corpus Christi marine terminal of Trafigura, a big global crude trader. While growth prospects are more modest than at ETE, they now look plenty bright enough to upgrade ETP to a buy below $55.

Enterprise Products Partners LP (NYSE: EPD) Although earnings fell just shy of Wall Street’s expectations, distributable cash flow excluding asset sales and insurance proceeds rose 6 percent in a year’s time, providing coverage of 1.5x to the increased distribution and letting one of the largest pipeline partnerships retain $286 million for investment in growth projects. The distribution increased 6.2 percent year-over-year to $0.69 per unit, offering a current annualized yield of 4.5 percent. The unit price ticked up not quite 2 percent in the month through Nov. 11 despite a secondary offering of 8 million common units last week. On Oct. 31, Enterprise and its partners placed into service the new 583-mile Texas Express Pipeline with an initial capacity to transport 280,000 barrels per day of natural gas liquids from mid-continent gathering systems to the fractionation hub at Mont Belvieu, Texas. Separately, an Enterprise executive said on the conference call that the company expects to prevail in the Seaway Pipeline tariff case before the Federal Energy Regulatory Commission,  covered elsewhere in this issue. Given the heavy slate of scheduled pipeline rollouts over the next two years supporting lucrative NGL distribution and export projects, investment -grade-rated Enterprise remains one of the safest bets in the MLP space.  Buy EPD below $66.   

EQT Midstream Partners LP (NYSE: EQM) The Marcellus gas gatherer and shipper advanced 4 percent in the last month, though as with many MLPs the price ran out of gas late in the period. Earnings reported Oct. 24 comfortably exceeded expectations, and the partnership said annual EBITDA and distributable cash flow would come in at the upper end of prior guidance. The distribution rose 8 percent sequentially and 23 percent year-over-year to $0.43 per unit, for a 3.2 percent current annualized yield. Continue buying EQM on any dips below $51.

Icahn Enterprises LP (NYSE: IEP) The unit price of the investment partnership predominantly owned by financier Carl Icahn is up 35 percent in the last month and 48 percent in the two months since we recommended purchase. The activist bull market’s Pied Piper is now trading at significant premium to the net asset value of its assets, one reason we recommended on Oct. 25 that you sell half of the initial position. (Barron’s made a similar call this weekend.) On the other hand, recent quarterly results reported by the partnership were surprisingly strong, and distribution coverage of more than three times would be the envy of most MLPs. Still, volatility has increased noticeably in recent days, evidence of worrisome speculative ferment. Sell half of your initial position in IEP if you have not already done so.

Legacy Reserves LP (Nasdaq: LGCY) Shares of the Permian Basin driller ticked up 2 percent over the last month, yet couldn’t hold October highs above $29 despite quarterly results that impressed Wall Street. The partnership reported a 15 percent annual revenue gain , while oil production increased 3 percent sequentially even as high Permian prices slowed Legacy’s purchases of wells. The 12^th consecutive increase in the distribution took the payout to an annualized $2.34 per unit, for a current yield of 8.6 percent. And while the 3.5 percent year-over-year distribution increase was toward the low end of the targeted 3-to-6-percent range, that was perhaps a reflection of the attractive returns the partnership expects from its newly increased capital spending plan. The distribution coverage improved to an ample 1.3 times, while debt remained modest relative to cash flow, especially for an upstream MLP. What’s more, Legacy used the recent peak in oil prices to enter into attractive hedges largely shielding it from commodity price risk for the next two years. Investors may be worried that prices in the Permian have risen too much too fast, yet Legacy’s recent drilling results appear to be justifying the excitement. This is perhaps the best-managed upstream partnership, and analysts were nearly unanimous in volunteering praise for the latest quarter.  Buy LGCY below $29.

MarkWest Energy Partners (NYSE: MWE) Mark West’s disappointing third-quarter results might as well have been titled “A Series of Unfortunate Events.” Though rapidly growing gathering volumes in the Marcellus boosted distributable cash flow 11 percent in a year’s time, that wasn’t nearly enough to offset the 25 percent increase in the unit count as well as 4.9 percent year-over-year increase in the unit payout, resulting in a distribution coverage decline to 0.92x, from 1.09x a year ago, when MarkWest was able to increase its payout by 11 percent.

The partnership attributed the $14 million shortfall in operating income relative to its expectations to several temporary drags, including costly resort to third-party processing services in the Marcellus pending the rollout of additional in-house capacity, delays on a third-party pipeline project in the region as well as a landslide that took one of its gas processing complexes offline for two months. Some of these factors will still take their toll in the current quarter, leading the partnership to trim its annual forecast for distributable cash flow and causing the unit price to drop 10 percent in a day as a result. The plunge reversed the considerable gains made by MWE over the last three months. But next year’s outlook is much stronger, even as MarkWest invests billions in the infrastructure buildout its customers demand. Investing in MLPs often requires one to take the long view, and from that perspective MarkWest continues to offer some of the best growth opportunities. Disappointment with the latest results has bumped the annualized yield based on the newly announced payout to 5 percent. Buy MWE below $77.

Mid-Con Energy Partners (Nasdaq: MCEP) had the same up-and-down quarter as other drillers among MLPs, rallying early only to fade in the stretch as crude prices pulled back. The waterflooding specialist boosted its quarterly distribution 6 percent year-over-year to an annualized $2.06 per unit, for an 8.5 percent current yield. But while acquisitions boosted year-over-year output 32 percent, it slipped 3 percent sequentially as some previously producing wells were injected to refresh the recovery rate while other newly drilled ones awaited completion.  The distribution hike amid slowing production lowered the coverage ratio to a still healthy 1.19 times, and management cast its decision to take some of the wells offline as an investment in their future. But the decision will limit fourth-quarter output as well, and management didn’t provide much clarity on when the current injections might start to pay off, beyond intent to raise distributions next year. The partnership is also working on a near-term acquisition to spur growth, according to management. The unit price got hit, though, as Raymond James downgraded MCEP from Outperform to Market Perform. This is an opportunity, not a trap, though waiting for the acquisition news would be prudent. Buy MCEP below $24.

Navios Maritime Partners (NYSE: NMM)The dry bulk carrier operator was the Aggressive Portfolio’s second-best performer over the last month, its unit price rising 10 percent as quarterly results topped expectations. EBITDA declined 17 percent year-over-year as lower charter rates more than offset fleet growth, but this year’s rally in the shipping rates promises more favorable comparisons ahead. In addition, the partnership announced a transformative acquisition of five container ships (its first venture into that category) under long-term leases that should provide an annual rate of return after taxes and debt repayment of 10 percent. Pro-forma for the deal, the distribution coverage increased from 0.90 to 1.18, suggesting much greater security for a steady distribution currently yielding 10.9 percent. With next year’s distributions at the same level assured, management shifted its sights to higher payouts in the medium term. It’s counting on demand for its relatively new and efficient ships to improve thanks to higher imports of iron ore, coal and grain by China and India. The container deal spurred upgrades to Buy from Wells Fargo, Stifel , and Global Hunter Securities. Stifel also set a $19 target. We’re raising our buy below target for the second time in three months. Buy NMM below $17.70, a level at which the current distribution would still yield 10 percent.  

Oaktree Capital Group (NYSE: OAK)The alternative investment manager’s unit price slipped 4 percent over the last month, thanks to a pullback of 7 percent during the period’s last three trading sessions.  On Nov.  1 the distressed debt specialist headed by investment guru Howard Marks topped estimates with net income and distributable earnings per class A unit that were up 30 percent year-over-year. But the announced third-quarter distribution of 74 cents per unit was down from $1.51 per share in the prior quarter even as it rose 35 percent year over year, in the latter stages of the wind-down process for a particularly large and lucrative distressed debt fund launched in 2008. And investors may have been put off by the indication from management  that the fourth-quarter distribution will be lower still, in the 55 cents per unit range.  Still, Oaktree’s funds continue to shine, and while it’s finding fewer new investment opportunities at the moment, that hasn’t stopped the steady inflows of fresh investment capital from some of the world’s richest institutions. This is a long-term keeper that should provide solid risk-adjusted returns through the ups and downs of the business cycle. Buy OAK below $56.

Vanguard Natural Resources (Nasdaq: VNR) The producer of natural gas from mature wells made no headway in the last month but also dodged much of the volatility buffeting several of the upstream crude producers. October’s monthly distribution matched September’s, the $2.49 annualized payout providing an 8.9 percent yield based on the current price. Production for the third quarter was up 45 percent year-over-year thanks to recent acquisitions but down 3 percent sequentially. The partnership is eyeing a significant fourth-quarter acquisition, according to management, and also plans to ramp up capital spending, one reason it chose not to raise the most recent distribution.  Buy VNR below $28.