Friday August 03, 2012
by Lou Gagliardi, editor Cabot Global Energy Investor
In this chaotic market, my advise is to search for stocks with high dividend yields, low short-selling interest, good growth prospects and strong balance sheets.
For long-term investors I am now recommending Canadian pipeline company Enbridge Inc. (ENB) as well as its US master limited partnership affiliate Enbridge Energy Partners (EEP).
Enbridge Inc. services as the general partner to Enbridge Energy Partners with a roughly 23% ownership interest. I like infrastructure because it is in limited supple, and ENB is a good pick in this sector.
The stock has relatively low short interest, a good dividend yield of 2.9% and, since 1995, it has traded fairly consistently above its 200-day moving average n an almost upward vertical slope.
Debt interest coverage stands at a reasonable 3.6 multiple. Although the stock is roughly 6% off its 52-week high, it trades in a narrow 38% above its 52-week.
Enbridge Energy Partners is the largest transporter of Canadian oil imported into the US from western Canada; it also moves crude from North Dakota into the midwest.
The company owns a significant amount of crude oil storage capacity and significant natural gas gathering, transmission and processing faciliites.
Both ENB and EEP hit a speed bump with the announcement that EEP has lowered its full-year 2012 forecast to account for timid natural gas prices.
EEP now expected adjusted net income for 2012 in the range of $440-$470 million, which is down from the previous forecast of $510-$550 million. The company also intends to reduce spending in its natural gas business.
The good news is that the bad news is now in the stock price, and EEP sports a dividend yield of 7.1%. The firm believes that it can grow its distribution between 2% and 5%.
Short interest is very low and debt coverage stands at a modest 2.4 multiple. The stock also trades in a narrow range at roughly 12% off its 52-week high and 21% above its 52-week low.
I recommend buying both Enbridge Inc. and Enbridge Energy Partners. The stock profile of ENB is less erratic than EEP, having increased at a compound annual rate of 37% since July 2009.
EEP increased at a compound annual rate of 24% over the same period -- and its dividend yield is too good to pass up.
EEP has very good growth prospects and is a 50% owner with Enterprise Product Partners of the Seaway Pipeline that is now transporting crude from Cushing, Oklahoma to Gulf cost refineries.
EEP is dancing on its 50-ay moving average, but lies below its 200-day. Immediate support remains at $29-$39; long tern resistance is at the 200 day moving average at $31.10.
ENB is also dancing on its 50-day moving average, which lies above its 200-day. Immediate support remains at $39.06, with longer-term support at the 200-day average at $38.72.
My 6-month price target for ENB is $45 per share; for EEP, my target is $34-$35. Start with small purchases now and look to buy more on pullbacks toward support -- particularly if crude prices soften. Investor for the long term and be patient.
Learn more about this financial newsletter at Lou Gagliardi's Cabot Global Energy Investor.