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Enterprise Products: A Natural for Income

07/16/2015 8:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Based in Houston, our latest featured recommendation is one of the country’s largest publicly traded energy partnerships, with a market cap of more than $58 billion, explains Mark Skousen, editor of High Income Alert.
Enterprise Products Partners (EPD) is an energy partnership providing transportation and other essential services to natural gas producers.

Enterprise transports natural gas and crude oil through more than 19,000 miles of onshore and offshore pipelines.

It is also an industry leader in the development of infrastructure in the Deepwater Trend of the Gulf of Mexico.

Natural gas prices, of course, are down sharply over the past year. However, lower prices are only stoking demand and making natural gas more attractive relative to dirtier and more expensive forms of energy.

Moreover, pipeline companies are not terribly sensitive to commodity prices. Demand tends to stay relatively constant as pipelines offer—by far—the cheapest way to ship oil and gas over long distances.

Trains and trucks offer some competition, but pipelines are much less labor intensive and require little maintenance.

Furthermore, there are significant barriers to entry. Acquiring the regulatory approval to build a new pipeline is a long and difficult process. And the significant investment required generally stops new competition in its tracks.

Corporate insiders are aware of these facts, of course, and they have been significant buyers of the stock recently. In fact, insiders own 37% of the outstanding shares here.

Director Richard Snell recently purchased 8,000 shares, an investment of $239,280. This comes on the heels of a $150 million buy by director Randa Duncan Williams a few months ago.

Clearly, these two believe these shares are undervalued. And with the stock selling for less than 19 times prospective earnings and yielding 5%, so do I.

So, pick up Enterprise Product Partners at market. And place a protective stop at $25.

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