The New Best Buys

1. Energy Transfer Equity (NYSE: ETE)

2. Antero Midstream Partners (NYSE: AM)

3. CONE Midstream Partners (NYSE: CNNX)

4. EQT GP Holdings (NYSE: EQGP)

5. Enbridge Equity Management (NYSE: EEQ)

6. Enviva Partners (NYSE: EVA)

7. TerraForm Power (NASDAQ: TERP)

8. Blackstone Group (NYSE: BX)

9. Cedar Fair (NYSE: FUN)

10. Magellan Midstream Partners (NYSE: MMP)

11. Enterprise Products Partners (NYSE: EPD)

Size may not be everything but it’s not nothing, either. During the midstream sector’s recent crash, our preference for large, diversified and conservatively managed MLPs served us well.

Enterprise Products Partners (NYSE: EPD) and Magellan Midstream Partners (NYSE: MMP), perennials at or near the top of this list, justified the love by significantly outperforming their peers and the entire industry during the bad times.

So it shouldn’t be too surprising that they’ve lagged in the recovery. But there’s more to it than that. Both of these steady giants now face fundamental headwinds simply because they’re big not to feel the effect of what are still, despite the recent bounces, vastly lower energy prices.

For Enterprise this has been reflected in lower margins on oil and gas shipments and natural gas liquids processing. It’s a testament to the breadth and utility of its asset base that it has been able to hold profits flat in this environment. But it’s also a testament to the billions of dollars it has spent on organic growth projects in each of the recent years, as well as billions more expended on acquisitions. At some point in the not-too-distant future those heavy annual expenditures should pay off with a big boost to cash flow, especially because a fair proportion of the cost was financed out of retained earnings. But even in the good times before the slump the distribution was growing at only 5% a year, and even now with the yield up to 6%, that’s far from the most attractive growth-and-income combo out there.

Magellan’s current handicap is slackening demand for the Texas crude pipes in which it owns a stake, the same ones that were such powerful growth and profit drivers in recent years. The partnership’s best-in-class refined fuels shipping system has picked up some of the slack for the weak crude flows that management acknowledges could persist for years. But that still leaves Magellan with thinning earnings and balance sheet cushions as it persists with plans to increase the distribution 10% this year and at least 8% in 2017. With cash flow expected to decline modestly in 2016, the distribution increases are steadily whittling down the big legacy coverage surplus. Meanwhile, a Debt/EBITDA ratio that was at 2.5 early last year is now expected to rise toward management’s target of 4 as Magellan borrows more to finance its growth initiatives.

That’s not to say that either Enterprise or Magellan don’t belong on this list. That would be like benching Tom Brady or Steph Curry after a rare bad game. Both MLPs still have MVP potential: they remain uniquely well positioned to capitalize on their scale and skillsets over the next few years. But for the balance of this year their equity could well continue to lag, and the new lower rankings among our best ideas reflect this likelihood.

Rightly or wrongly, growth-levered MLP general partner Energy Transfer Equity (NYSE: ETE) was treated much more rudely during the recent slump, and we’re obviously not surprised that it came roaring back once the sum of all fears was properly discounted.

And though the rally has depressed what was a double-digit yield earlier this year down to 6.3%, that’s still quite generous given all the growth levers at the disposal of founder Kelcy Warren. The speed with which Energy Transfer sold, marketed, permitted and built its nearly completed Bakken-to-Gulf crude pipeline has been particularly impressive, at a time when many rival pipeline plans have been stymied by local opposition or simply a lack of demand.

And though Energy Transfer Equity has been forced to subsidize its affiliates’ heavy investment of late, those subsidies tend to produce very attractive returns for general partners in the long run. So we’re not dialing back our endorsement of ETE as the most attractive long-term proposition out there. By the time distribution growth resumes in a year or two, as it almost inevitably will, the current price should end up looking like a bargain.

Next in the pecking order we have a trio of midstream plays focused on the overlapping Marcellus and Utica shales, which form the lowest-cost North American energy basin in the heart of Appalachia. The drillers sponsoring Antero Midstream Partners (NYSE: AM), CONE Midstream Partners (NYSE: CNNX) and EQT GP Holdings (NYSE: EQGP) have a long and clear growth runway, as reflected in the fundamentals of these partnerships even at today’s low price of natural gas.

Antero Midstream offers a current yield of 3.8% from a payout  set to grow more than 30% this year and as much the next, with distribution coverage of 1.7x. CONE has a 5.5% yield, annual growth of 16% and no debt to speak of. EQT GP, a proxy for EQT’s (NYSE: EQT) general partnership interests in EQT Midstream (NYSE: EQM), yields a modest 2.4% for now but is growing its payout 50%-plus this year, which is to be followed by an increase of at least 40% in 2017.

EQT’s vast acreage in the liquids-rich core of the Marcellus makes it one of the lowest-cost and highest-return drillers in the play, and its balance sheet is one of the healthiest around. AM’s sponsor Antero Resources (NYSE: AR) has the basins most expansive drilling program, backed by the best hedge book in the business that leaves it largely impervious to even medium-term fluctuations in the price of natural gas. CONE is backed by a joint venture capitalizing on the large Marcellus and Utica acreage of the coal miner CONSOL (NYSE: CNX), which is only beginning to scratch its potential as a gas producer (and which has, incidentally, returned 26% since our sister publication The Energy Strategist recommended it four months ago.)

Enbridge Equity Management (NYSE: EEQ) is the non-MLP proxy for a Enbridge Energy Partners (NYSE: EEP), leading U.S. shipper of crude from Canada. Output in Alberta has proven surprisingly resilient amid low prices, in part because big oil sands projects represent large up-front investments but have relatively low operating costs. While EEP makes quarterly cash distributions currently yielding 9.5%, EEQ converts these into additional shares of EEQ, effectively providing automatic reinvestment of an income stream suitable for tax-deferred accounts. Failure to reinvest the dividends is a surprisingly large drag on long-term performance. See New Buys elsewhere in this issue for more on the merits of the Enbridge affiliates.

Enviva Partners (NYSE: EVA) is the leading supplier of wood chips, primarily to European utilities trying to meet stringent carbon emission standards by converting coal plants to burn this much cleaner fuel. It yields nearly 9%, could fully cover a 13% yield and is growing its payout 12% annually. As with almost all of our portfolio recommendations, you can read about its latest results and outlook in this month’s Portfolio Update.

TerraForm Power (NASDAQ: TERP) is another renewable energy play, with solar and wind assets contracted under long-term power purchase agreements to investment-grade utilities. It’s deeply discounted as a yieldco of the bankrupt SunEdison that’s not currently providing any yield and still rushing to catch up on overdue financial filings. But management seems determined to defend broad shareholder interests ahead of an upcoming auction of SunEdison’s controlling stake. And once TerraForm gets a new sponsor and resumed distributions we expect shares to be revalued much higher in line with industry comparables.

Blackstone Group (NYSE: BX) is the largest private equity firm and alternative asset manager in the world, entrusted with $356 billion of other people’s money. It’s growing much faster than the competition and has yet to cash out the bulk of this bull market’s gains, yet the variable distributions on its units already yield 6% on a 12-month trailing basis. The unit price is up 13% since July 6 but still down 36% from the record high scaled 15 months ago. If Blackstone simply performs up to its 31-year-track record, the fees it will earn and distribute should be more than sufficient to power another run at all-time highs before long.

Amusement park operator Cedar Fair (NYSE: Fun) has been transformed since the current CEO, a Walt Disney (NYSE: DIS) veteran, came aboard five years ago. The price has since tripled as rising cash flow bankrolled park investments that have paid off and still sustained a distribution that’s doubled in the last four years. Innovative marketing initiatives, low unemployment and cheap gas have driven attendance to new highs this summer, despite the drag from the heatwave in late July. With many of its costliest investment plans nearing completion, Cedar Fair will soon confront the pleasant problem of finding new uses for free cash. Expect more distribution increases after growth of 10% over the last year, and eventually a significant share buyback.