Considering Two Energy Names

 | Jun 27, 2013 | 11:00 AM EDT
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Even though first-quarter GDP growth was revised down 25%, the market enjoyed a nice rally on Wednesday. The S&P 500 and the Nasdaq gained just under 1% on the day and the Dow Jones Industrial Average rose nearly 150 points. The DJIA has now had more 100-point days, both up and down, in one month than in any time since October 2011.

I expect this volatility will continue through the summer or at least until investors get a better read on the direction the Federal Reserve plans to take and whether economic growth can maintain or accelerate off its current level. Investors also need to keep a watchful eye on China and emerging markets, given the recent challenges in both areas.

I continue to build a list of good yield plays that have backtracked over the last six weeks due to the run up in interest rates. I plan to slowly deploy cash into these solid income plays on any pullbacks. I suspect we will have numerous one-, two- and three-day declines through the summer months. Here are two more yield plays on that list from the energy sector.

Linn Energy (LINE) has been hit by the backup in interest rates. In addition, several articles in Barron's have questioned some of the company's accounting methods. However, both "El Capitan" Jim Cramer and noted value investor Leon Cooperman have looked into these allegations, found them to be in line what others in the industry use, and have defended LINE strenuously. If these two market mavens have done their due diligence and put their blessing on LINE, then that is good enough for me to scoop up these shares at a discount. Howard Weil upgraded the shares to Outperform last week as well.

This oil and natural gas producer is yielding over 9% (9.1%) currently. Its proposed merger with Berry Petroleum (BRY) could be a game changer as it will provide faster production growth as well as a higher oil ratio within its overall production. After bottoming at just below $30 a share, LINE has performed better recently. However, at $34 a share, it is still about $5 a share below where it was trading at six weeks ago. Investors are getting paid a great yield while they wait for the Berry Petroleum acquisition to be completed.

Plains All American Pipeline (PAA) is another energy limited partnership that is down around $5 a share over the last six weeks to just under $55 a share. As it name implies, Plains transports and stores fuels through its pipelines, storage and other facilities. The shares yield 4.3% and the company has incrementally and consistently raised its payout over the years. PAA has also gotten some love from analysts this week. Ladenburg Thalmann raised PAA to a Buy on Tuesday with a $61 price target. Monday Deutsche Bank listed the company as one of its favorite plays in the space.

PAA is a huge player in this sector and is on track to have more than $40 billion in sales this fiscal year. Analysts expect revenues to grow 6% to 8% annually over the next two fiscal years. The company has little commodity price risk and has easily beat earnings estimates for each of the three quarters. After falling the prior two months, consensus earnings estimates for both fiscal 2013 and fiscal 2014 have ticked up over the last month. The median price target of the 22 analysts who cover Plains is just north of $62 a share.

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