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MLPs: Long-term Fundamental Thesis Remains Intact

10/29/2015 10:01 am EST

Focus: MLPS

Michael Berger

President & Founder,

Though he feels the MLP sector faces a number of headwinds during the remainder of 2015 and most of 2016, Michael Berger, of, still views these stocks in the sector as a compelling investment.

With commodities market volatility running high, many investors have moved to the sidelines. The energy market has seen the price of crude oil come down from its recent highs and this has sent stock prices down with it.

Although we maintain a long-term bullish thesis on the MLP sector, it faces a number of headwinds during the remainder of 2015 and most of 2016. We believe that crude oil markets will continue to see volatility as the market deals with the current oversupply situation. Other headwinds for the MLP sector include:

  1. A worsening economic crisis in Russia and Greece, which will have a ripple effect on European economies and oil demand,
  2. Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait are focused on market share, not the price of oil.
  3. Venezuela is on the brink of economic collapse
  4. The removal of economic sanctions on Iran will bring more oil to the market.

During the next quarter, we expect to see a supply response that should slow down oil and natural gas production in the United States. That being said, we continue to believe that the need for midstream infrastructure will not dissipate.

Long-Term Thesis Intact

Our long-term fundamental thesis remains intact and we view MLPs as a compelling investment considering the long-term, tax-advantaged total return potential. The fee-based structure of MLPs, coupled with long-term contracts, creates added protection for income investors.

Investors should target companies that have the following characteristics: 1) Geographic diversity, 2) Stable and visible cash flow (the more fee-based, the better), 3) Visible growth backlog, 4) Ample liquidity to capitalize on organic and inorganic growth initiatives, and 5) Experienced management team.

MLPs to Watch

Looking ahead, while commodity price volatility should continue to act as a headwind, we continue to recommend incorporating well positioned MLPs into any well diversified portfolio. We believe the following stocks will outperform the market on a longer-term basis: Antero Midstream Partners LP (AM), Enterprise Products Partners LP (EPD), Energy Transfer Equity LP (ETE), Rose Rock Midstream (RRMS), Magellan Midstream Partners (MMP), Plains GP Holdings (PAGP), Tesoro Logistics (TLLP), Targa Resources Corp. (TRGP), Vanguard Natural Resources (VNR), and Williams Partners LP (WPZ).

Michael Berger, Founder and President,

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