Piping In Solid Performance

 | Sep 13, 2012 | 10:30 AM EDT
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About once a week, I look at which industries and narrower sub-sectors are showing improvement in terms of price action.

Within the S&P 500, the energy sector is the quarter-to-date leader, with a gain of 9.32% since July 1. Within energy, one area that's been performing well is the pipeline subsector. Over the past year, as a growing number of investors have been seeking yield, pipeline stocks have been in favor with many fund managers.

One of the best performers here, both fundamentally and technically, is Enterprise Products Partners (EPD). The company operates liquefied natural gas pipelines, as well as storage facilities for natural gas and refined products, marine services and natural gas processing plants.

The stock has been gradually drifting lower since its July 20 high of $54.98. Prior to that, it had rallied out of a classic double-bottom base, clearing a buy point above $52.94.

The current consolidation could be constructive, as the stock is finding support along key moving averages, and has been trading in a fairly tight weekly range.

Enterprise Products has a current dividend yield of 4.8%. A red flag has been a revenue deceleration over the past several quarters. However, analysts are eyeing earnings growth of 6% this year to $2.52 per share.

Another pipeline and storage company that caught my attention is Tesoro Logistics (TLLP). The stock was spun off from Tesoro (TSO), having made its NYSE debut in April 2011 at $21. Shares closed Wednesday at $46.55, its all-time closing high.

Tesoro Logistics' dividend yield is 3.5%. Analysts expect earnings of $1.83 per share this year, more than double last year's level. It's seen reporting an earnings gain of another 36% next year.

With the rally to new highs, this stock is currently out of buy range. As of Wednesday's close, it was extended 2.8% from its five-day line, so it definitely could use a short-term pullback to offer the next buy opportunity.

A widely traded mid-cap from the pipeline industry that gets a lot of media attention is Cheniere Energy (LNG). The ticker pretty much conveys the company's area of specialization; it operates liquefied natural gas terminals.

Though it moves more than 5 million shares per day, this stock has a ridiculously high beta of 2.12. Even a monthly chart easily shows wide price swings.

The stock is up nearly 90% year-to-date despite the price vicissitudes. Nonetheless, this would be a difficult stock for many to hold. In addition, it has nothing to offer investors who base their buys on earnings and dividend payouts.

Cheniere is one of those companies that has attracted investment because of its future potential. Energy analysts I've spoken with are especially optimistic about potential for the company's Sabine Pass LNG terminal. Cheniere plans to add capacity to the Louisiana facility.

So what about the stock's technicals? Cheniere has been forming a sloppy consolidation since pulling back from its April 22 52-week high of $18.92. It's now trending above its five-day average, extended 3.5% from that price line. At this juncture, I would wait for the next short-term pullback before attempting a buy.

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