Small-Cap Corner: Bet on BreitBurn (BBEP, EPD, KMP)

The master limited partnership universe is similar to other more traditional sectors for one reason: Investors and the mainstream financial media are often guilty of focusing on the group's largest, most popular constituents while overlooking some of the smaller names with hidden gem potential. When it comes to MLPs, an asset class that has really come into vogue over the past several years due to the robust payouts, high yields and significant tax advantages offered by these stocks, that means companies such as Enterprise Products

, Kinder Morgan

and Magellan Midstream

get the bulk of the attention. That's not a bad thing per se because those stocks have offered solid returns with outstanding dividends and yields. However, excessive focus on only the largest MLP names can lead investors to miss out on some interesting small-cap names such as BreitBurn Energy Partners

. These days, BreitBurn, which has a $1.2 billion market cap to put it solidly in small-cap territory, is yielding 11%. Said another way, one would need to combine the yields on Enterprise Products and Kinder Morgan to exceed that of BreiBurn. California-based Breitburn's properties include natural gas, oil, and midstream assets comprising fields in the Antrim Shale in Michigan, and the New Albany Shale in Indiana and Kentucky; and fields in the Evanston and Green River basins in southwestern Wyoming, the Wind river and Big Horn basins in central Wyoming, the Powder River basin in eastern Wyoming, the Los Angeles basin in California, and fields in Florida’s Sunniland Trend. At the end of 2011, the company said it had proven reserves of 151 million barrels of oil equivalent. The rub with BreitBurn is that as a small-cap, it's 2012 declines have been steeper than many of its large-cap rivals. BreitBurn units are off 9.3% year-to-date. On the other hand, the JPMorgan Alerian MLP Index ETN

is off 6.7% while the ALPS Alerian MLP ETF

has lost 5.8%. Not surprisingly, most of the good news story with BreitBurn revolves around the distribution. Following a dividend cut in the second quarter of 2010, the MLP has proceeded to boost its payout eight times, including twice this year. In the past two years, BreitBurn's dividend has increased by roughly 20%. BreitBurn's chart is improving as the units recently found support at $16.50 and have bounced higher over the past two days. At this juncture, the stock needs to clear $17.50 on strong volume because that move would take it above both its 50- and 200-day moving averages. From current levels, the $19 area could prove to be a reasonable year-end price target.