NGL Energy Partners LP (NGL)

[Watch30]

Found this interesting article on ngl by Forbes. My top pick for 2018 is Tulsa, Oklahoma-based NGL Energy Partners LP. Oil prices have staged a nice rebound, with WTI trading between $55-$60/bbl. and yet tax-loss related selling continues to weigh on most of the energy sector from depressed pricing for most of 2017.

In light of this dislocation of the stronger commodity pricing and weak investor demand, I’m looking to take advantage of this disparity by adding NGL Energy as a speculative buy. The master limited partnership currently yields 12%. This is not a pure play on oil, but rather a spread play on different aspects of the energy distribution, logistics and refining operations.

I remain in the camp there is ample supply of oil and gas, but moving it, storing it and refining it stand to largely benefit from a strengthening economy as demand rises and NGL Energy is one of those companies that are seeing improving margins in all these segments of its business.

As to the $1.56 per share annual distribution, the trailing 12-month distribution coverage is 0.80, which implies the current payout is secure. The CEO has pledged to maintain it with the intention of raising it.

I’m betting on the combination of better business conditions shaping up for NGL Energy Partners and yield-hungry buyers looking for a company that has both pricing power and offers a nice inflation hedge. I look toward another upbeat update in the first quarter of 2018 and look for the stock to continue its steady rebound in the months ahead with a price target of $20.