April is in the books, and it was a month to remember. The 11% gain in April was the 5th best monthly advance ever for the Alerian MLP Index (AMZ), and it tied the best April on record. After falling sharply in the first quarter, the AMZ has now risen by 38% since its February lows, and is in positive territory for the year for the first time in months.

Underlying fundamentals remain strong as well. Through last week 86 MLPs had announced first quarter distributions, but only 13 decreased their payouts. These were mostly upstream or downstream partnerships. On the other hand 32 MLPs raised distributions from the previous quarter, including the double-digit percentage increases at Tallgrass Energy Partners (NYSE: TEP), Tallgrass Energy GP (NYSE: TEGP) and Viper Energy Partners (NASDAQ: VNOM).

The top performer year-to-date is beleaguered oil producer Mid-Con Energy Partners  (NASDAQ: MCEP). It is up over 200% in 2016, but it had fallen so far that it is still down 45% over the past 12 months. SunCoke Energy Partners  (NYSE: SXCP) was far back in second place with a year-to-date gain of 73%, but it is also down year-over-year (-37%).

The rally in April was broad-based. Of the 125 MLPs currently in my database, 103 had a positive return in April, and 65 had gains of at least 10%. Another beaten-down oil producer, Legacy Reserves (NASDAQ: LGCY) soared by an astounding 218% for the month. But investor beware: it is down by more than 20% over the past week.

Here are April’s top 10 performers:

• EV – Enterprise Value in billions of U.S. dollars as of May 2
• 1-Year Return – Total shareholder return (TSR), including dividends, for the past 12 months

April’s top performers come from many corners of the MLP space, but they do have one thing in common. Every one of them still has a negative total return for the past year, and 9 of 10 still have losses of more than 40% over that span despite the April surge.

Our advice is not to chase the surge without doing plenty of due diligence. You can start by joining us at MLP Profits, where you can read why one of April’s top 10 performers is currently our #1 Best Buy.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

No Cash Shortage at EQT

We’ve been harping for a while on our thesis that natural gas is headed much higher, given growing demand and declining output at the current price, which has made drilling uneconomical for all but a handful of lowest-cost producers.

None of these survivors have better acreage or lower lifting costs that EQT (NYSE: EQT), the dominant producer in the wet gas core of the Marcellus shale in southeastern Pennsylvania and northern West Virginia.

Last week EQT posted quarterly results that showed it continuing to generate strong operating cash flow even at the recent rock-bottom prices, aided by its rising output, solid hedge book and cost savings.

This cash flow is covering the bulk of EQT’s still energetic capital spending, which will allow the company to be among the biggest beneficiaries when natural gas prices recover.

Those returns will be enhanced by today’s announcement that EQT will buy drilling rights on 62,000 West Virginia acres adjacent to its turf from Statoil (NYSE: STO) for $407 million. Although EQT could have paid cash out of its $1.5 billion warchest, it opted instead to raise more than $800 million via an upsized equity offering at a modest discount that has already been erased.  

The stock is up 32% year-to-date but still down 37% over the last two years. When gas takes off, the bulk of that markdown should get erased. We’re upgrading EQT to a Buy below $80 in the Aggressive Portfolio.     

— Igor Greenwald