US natural-gas prices recently tumbled to an all-time low and will likely slip even further in coming months, thanks to elevated storage levels and an unusually warm winter. But these ultra-depressed prices will accelerate decline rates in mature basins, creating opportunities longer-term opportunities for volumetric growth in areas with low production costs.
A few bad apples don’t spoil the bunch. Some midstream names will find themselves under pressure from declining oil output in the US onshore market, as the effects of energy producers’ reduced drilling activity start to manifest themselves. But indiscriminate selling creates opportunities for discriminating buyers.
Some investors worry that the MLP structure itself has a fatal flaw, a concern that reflects the market’s tendency to view the group as a whole during times of panic. Examining the factors at play in the recent correction can help to identify the pockets of risk and the best-positioned names for when the market returns to its senses and focuses on individual stories.
With more than 30 MLPs offering yields of more than 8 percent after the recent bust-up, income-seeking investors may be tempted to buy the dip. For aggressive investors, two high-yield names stand out as being of interest.
Units of the two master limited partnerships in our Lifelong Income Portfolio have treaded water since mid-2013, mirroring the performance of the Alerian MLP Index. Here’s why investors should stick with these names in 2014 and beyond.
The past five years have been a golden age for energy-focused master limited partnerships (MLP). Fueled by access to inexpensive capital, elevated oil prices and rising demand for infrastructure to support the US energy renaissance, MLPs have posted impressive distribution growth and delivered huge returns since the bull-market rally began in spring 2009. However, past performance isn't predictive of future results. And with many MLPs trading at sky-high valuations, investors will need to be selective and avoid value traps.
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