Meet the Rodney Dangerfields

The Best Buys list is intended to hold up over the long haul, so that if instead it’s changing constantly that’s probably not a healthy sign.

And yet the very qualities that have made Magellan Midstream Partners (NYSE: MMP), for example, our top-ranked Best Buy also limit its upside following the recent market turmoil. Few MLP investors at this point don’t realize that it’s thriving and extremely secure pipeline operator. That reputation is in the price. It’s also in the 4% yield, while Plains All American (NYSE: PAA) is above 10%.

But this isn’t about Magellan or Plains, but rather about some of the less well-known names that have been unceremoniously dumped like so much bathwater, notwithstanding encouraging business trends.  They should have plenty of near-term upside if and when the market turns. While none are on the Best Buys list, they’re all good buys here. I think of them as oversold tactical opportunities or, if you prefer, the Rodney Dangerfields.

dangerfield

AmeriGas Partners (NYSE: APU) – That yield of nearly 9% comes from a leading propane distributor with a demonstrated record of expanding margins whether its product is in short supply, as two years ago, or glutted and dirt-cheap, as now. Sure a warm winter would be a drag, but it would not strip away the solid coverage. Buy Growth pick APU below $51.

Archrock Partners (NASDAQ: APLP) – The contracted compression provider yields more than 13% after a 37% unit price decline over the last six months, even though demand for its services has declined only marginally year-over-year, and despite the fact that it’s more correlated with production levels rather than drilling. Buy Growth pick APLP below $25.

Capital Products Partners (NASDAQ: CPLP) – The fuel tankers operator yields almost 15% even as it continues to re-charter its ships at higher rates, and with less reliance on its sponsor than previously. Nearly 80% of next year’s capacity has been locked up, providing visible support for the planned distribution growth of 3%. Buy Aggressive pick CPLP below $7.

DCP Midstream Partners (NYSE: DPM) – One of the largest natural gas processors in the U.S. has halted distribution growth as it copes with rock-bottom natural gas liquids prices. But the gas volumes entering its plants have held up, and the current yield of nearly 12% is well covered. DPM is leveraged to a rebound in crude prices, which would in turn push up the NGLs. Buy Growth pick DPM below $33.

New Residential Investment (NYSE: NRZ) – NRZ is unusual even by the standards of mortgage real estate investment trusts, in that its portfolio of excess mortgage servicing rights would actually benefit for rising interest rates. It’s been hurt by the perception that the sponsor is mostly interested in driving up its fees, but after two equity offerings tied to acquisitions earlier in the year, the CEO has categorically denied plans to sell more stock any time soon. The yield is near 15%. Buy Aggressive pick NRZ below $15.    

PBF Logistics (NYSE: PBFX) – The logistics offshoot of a fast-growing refiner overseen by an industry legend should benefit tremendously from its sponsor’s recent purchases of two refineries from ExxonMobil. The yield is up to nearly 8%, and comes packaged with annual distribution growth of nearly 30%, backed by cash earnings almost 60% larger than the payout. Buy Growth pick PBFX below $28.  

SemGroup (NYSE: SEMG) – The well-diversified sponsor of the Rose Rock Midstream (NYSE: RRMS) MLP doesn’t offer the same yield as the names above, but it’s getting there at 5% after 50% growth over the last year. Third-quarter EBITDA was down just 4%, while the share price is down 46% year-to-date. The company continues to pursue promising midstream opportunities under a capable and energetic CEO.  Buy Growth pick SEMG below $45.

 

Stock Talk

Karl

Karl

Hi Igor,
i can’t find Archrock Partners LP in the growth portfolio. Instead the old name Exterran Partners LP is there. Price, limit and loss are wrong.

Any comment in APLP?

Best,
Karl (Germany)

Igor Greenwald

Igor Greenwald

Yes, this will be reflected in the portfolios shortly.

In the November portfolio update (http://www.investingdaily.com/mlp-profits/articles/24077/all-the-cards-on-the-table/) I wrote:

Archrock Partners (NASDAQ: APLP) reported 1.14x coverage on a distribution that rose 3.6% in a year’s time, though that was down from coverage of 1.24x (excluding temporary cost caps) a year earlier. The current annualized yield is at 13.6%. The unit price is down 16% year-to-date and 37% from the May high. Buy Growth pick APLP below the reduced limit of $25.

Since that mid-November update the price is down by a third, taking the annulaized yield to 20%. I expect gas production, which is the primary driver of compression demand, to remain incredibly resilient, and there’s a good chance APLP pops up as a new Best Buy next week.

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