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MLP Investors: This Downturn Is Nothing Compared To 2008

MLP Investors: This Downturn Is Nothing Compared To 2008

• Despite the sell-off in MLPs during the oil downturn, Pointe Capital believes the current environment is nowhere near as bad for MLPs as the Financial Crisis was.

• Pointe Capital predicts that oil prices will begin to recover in 2016.

• The firm urges investors to focus on midstream MLPs and those unrelated to the energy business.

It’s been a rough year for many MLP’s, but a new report by Pointe Capital Management indicates that MLPs are not as poorly-positioned as they were following the Financial Crisis in 2008. In fact, Pointe sees a handful of MLPs that it believes have been unfairly punished by the market.

Not As Bad As 2008

Pointe notes that the recent decline in MLP prices probably seems worse to investors than the 2008 decline did because the 2008 market decline was widespread across all sectors, whereas the recent sell-off has occurred strictly within the energy sector. In fact, the S&P 500 posted only a about a 6.0 percent decline in Q3, whereas the MLP indices declined up to 25 percent during that time. However, while the relative drop is severe, the overall drop in commodity prices this time is not as severe, and credit markets are not frozen like they were in 2008 and 2009.

Oil Prices Will Recover

Pointe Capital believes that fears surrounding the possibility of a multi-year period of $40/bbl crude are unwarranted. The firm predicts that a combination of falling supply and surprisingly high global demand growth will lead to a recovery in oil prices in 2016.

Unfair Punishment

For now, Pointe Capital urges MLP investors to focus on midstream MLPs because they have little exposure to crude prices. Even in the worst-case scenario for crude prices, the firm does not see distribution growth in 2016 falling below 3.0 percent, nowhere near the 1.5 percent growth seen in 2010 following the Financial Crisis.

Boardwalk Pipeline Partners, LP (NYSE: BWP), Kinder Morgan Energy Partners LP (NYSE: KMP) and Enterprise Products Partners (NYSE: EPD) are just three examples of midstream MLPs.

In addition, some MLPs, such as StoneMor Partners L.P. (NYSE: STON), have absolutely nothing to do with the energy industry, yet have faced indiscriminate selling pressure.

Disclosure: the author holds no position in the stocks mentioned.

Latest Ratings for BWP

Jul 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Jun 2018JP MorganDowngradesOverweightNeutral
May 2018BarclaysMaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for BWP
View the Latest Analyst Ratings


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