A Pair of Possible Bargains

 | Jun 04, 2012 | 11:30 AM EDT  | Comments
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Stock quotes in this article:

apl

,

clmt

The market has experienced significant turmoil in the second quarter. I expect increased volatility will continue until we get some resolution to the European crisis and some clarity on the direction of worldwide growth. With 10-year Treasuries yielding less than 1.5%, there are some compelling values in the high-yielding energy master limited partnerships (MLP) space.

This sector has several positives going for it. (A) Its high distributions look very good compared to the paltry yields available in more traditional income vehicles such as CD's or treasury bonds, (B) the transportation sub-sector is relatively unfazed by falling NG or oil price as most of their revenues are fee based, (C) Oil-and-gas continues to gain domestic energy market share from the under siege coal industry.

Here are two high-yielding MLPs that have been hit by the fall in the overall market and some recent disappointing earnings reports, but both look like solid bargains for income investors over the long run.

Atlas Pipeline Partners (APL) gathers and processes natural gas in the mid-U.S. and Appalachian regions and transports natural gas liquids (NGL) in the mid-U.S. region.

Four reasons APL is solid choice for income investors at under $29 a share:

  • The company has a solid balance sheet (A+ rated by Standard & Poor's), low beta (.89) and yields 2.8%
  • The company is rapidly growing revenues as it builds out its infrastructure and customer base. Analysts expect 12% sales growth in fiscal-year 2012 and a 36% increase in FY2013.
  • APL has grown its operating cash flow by over 150% in the last three years and the stock is priced near the bottom of its valuation range based on P/CF and P/S.
  • The stock is selling at 13.2 forward earnings after a couple of disappointing earnings reports. This is a discount to its five-year average (23.6) and the median analysts' price target on APL, which is $41.50 a share.

Calumet Specialty Products Partners (CLMT) sells specialty hydrocarbon products, such as lubricating oils, in North America.

Four reasons CLMT is a solid pick for your income portfolio at under $22 a share:

  • CLMT is selling at just over 9x forward earnings, a discount to its five-year average (11.6).
  • Calumet provides a generous 10.2% yield as well as a very low beta (.41) compared to the overall market.
  • Insiders have been net buyers of the stock over the last three quarters and earnings estimates for fiscal-year 2012 have substantially improved over the last month.
  • The stock is under followed -- only two analysts have price targets on CLMT. One is at $25 a share and another is at $27 a share. It also has made consistent distribution increases over the past couple of years.

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