(Story updated with fourth stock strategy idea)
1. Tap Into Energy Infrastructure Growth Through MLP's.
NEW YORK ( TheStreet) -- In today's daily series of investing strategies from Wall Street, analysts talk about the benefits of investing in master limited partnerships and revisiting the home furnishings industry.
"The need for infrastructure construction in North America to match rising natural gas, oil and natural gas liquids volumes is unprecedented," say Deutsche Bank analysts, who estimate that in North America, infrastructure spending will reach $20 billion a year through 2015 for pipelines, gathering, processing, terminals and storage. They also believe the industry's secure and stable streams of income through its fee-based businesses and contracts will continue to be conducive to its ability to raise the debt and equity.
One of the best ways, they say, to tap into this growth in energy infrastructure construction is through master limited partnerships, which combine the tax benefits of a limited partnership with the liquidity of common stock. An MLP isn't a corporation, but its stock trades on major exchanges just like a publicly-traded company.
The Deutsche Bank analysts say that the MLPs they're covering will likely provide total returns of above 10% on an annualized basis for the next several years. Right now, they have an average yield of 6.3%, with 6% to 8% distribution growth as well as 5% to 10% earnings and cash flow growth. Also, they have a yield premium of 391 basis points over the ten-year Treasury. MLPs, which have to derive most of their cash flow from real estate, natural resources and commodities, showed a 13% total return last year, compared with a 2% rise in the S&P 500, according to the Deutsche Bank researchers.
They're particularly enamored with
Enterprise Products Partners
(EPD - Get Report)
Energy Transfer Partners
(ETP - Get Report)
Kinder Morgan Energy Partners
Rose Rock Midstream
(RRMS - Get Report)
Western Gas Partners
(WES - Get Report)
, predicting 18% total returns in the coming years. Kinder Morgan Energy Partners, Energy Transfer Partners, Rose Rock Midstream and Western Gas Partners' growth will likely come organically, through third-party acquisitions and through drop-down deals in which the general partner sells assets such as pipelines or gas-processing facilities directly to the MLP. These deals are usually highly accretive to cash flow and allow the MLP to boost distribution payouts immediately. The equity research analysts think that Enterprise Products Partners will prove to be the "leader" in organic growth, with its top of line assets.