Earnings Season Trades Part 2: Energy and MLPs

03/24/2016 9:42 am EST


Michael Berger

President & Founder, Technical420.com

After the Energy Information Administration reported a significant increase in United States oil stockpiles, Michael Berger of Technical420.com, highlights his three favorite energy and MLP stocks before earnings season in this second of five-part series.

Yesterday, the United States Energy Information Administration reported an increase of 9.4 million barrels in domestic crude-oil supplies. The increase was significantly larger than what Wall Street expected and total supply has increased in each of the last six weeks.

For part two of our five-part series, we want to highlight our three favorite energy and MLP stocks. While commodity price volatility should continue to act as a headwind for energy and MLP stocks, we recommend incorporating them into any diversified portfolio.

Three stocks on our radar include: Tesoro Logistics LP (TLLP), Baker Hughes Incorporated (BHI), and Concho Resources, Inc. (CXO).

Three Buy Opportunities

Tesoro Logistics is one of our favorite stocks at current levels following a recent 11% pullback. TLLP's low-risk asset base, coupled with a supportive sponsor, provides the company with one of the most compelling growth stories in the MLP industry. TLLP has a stable and visible base cash flow profile, strong support from its sponsor, Tesoro Corporation (TSO), a strong balance sheet, and ample liquidity to capitalize on growth opportunities.

Baker Hughes remains a favorite based on our bullish long-term outlook for North America's energy services market, coupled with a recent market downturn and favorable acquisition price. Last November, Halliburton Company (HAL) agreed to acquire BHI for $34.6 billion. Each BHI shareholder is set to receive 1.12 shares of HAL and $19 in cash per share if the deal closes. Should the deal not close, HAL must pay BHI $3.5 billion or $8 per share, giving BHI shareholders some additional protection.

Concho is one of our favorite energy stocks because the company owns some of the best oil producing land in the United States. CXO is also well positioned for another beat-and-raise performance during 2016. Over the last several years, CXO has been able to beat production and cost expectations on a consistent basis. We do not expect this theme to end during 2016. In fact, we believe that CXO will highlight its best-in-class operational capabilities. During the last month, CXO has rallied more than 10% and we see value on a dip.

By Michael Berger of Technical420.com

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