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MLPs: Analyzing the Opportunities Ahead

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Dec. 12 2018, Updated 12:51 p.m. ET

What’s ahead for MLPs?

MLP stocks have been on a notable downtrend for a while. So far, crude oil prices have fallen more than 16% in 2018. Crude oil prices influenced the similar movement in MLPs. Increasing production volumes had a positive impact on MLPs’ earnings in the third quarter. However, geopolitical tensions pulled down crude oil prices and MLPs.

The Alerian MLP ETF (AMLP), which tracks the 25 largest energy MLPs in the country, has fallen almost 15% in the last two months. In this series, we’ll discuss the AMLP constituents that offer the highest upside potential for the next 12 months. We’ll discuss their yields, recent performances, and target prices.

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MLPs with handsome potential upsides

Energy Transfer (ET) stock offers the highest upside potential of 57% for the next 12 months, according to analysts’ estimates. Enterprise Products Partners (EPD), the largest MLP by market cap, has the lowest upside potential of 30% among the MLPs listed above.

Currently, AMLP offers a distribution yield of 8.6%, which is a spread of more than 6%–7% compared to broader markets and Treasury yields.

The upside offered by the above MLPs is attractive. A handsome distribution yield also makes them an alluring investment option from the total return perspective. Continued production growth and a recovery in crude oil prices could increase investors’ confidence. We’ll have to wait and see how the strained trade relations between the US and China play out.

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