The Panic-Proof Portfolio (Stockchase Research)Enterprise Products Partners L PEPDTOP PICKJan 16, 2024

Stockchase Research Editor: Michael O'Reilly

We reiterate EPD as a TOP PICK.  Cash flow per unit is growing by 15%, while debt is aggressively retired.  It has over $6 billion in project back logs.  Its excellent dividend is backed by a payout ratio under 80% of cash flow.  We continue to recommend a stop at $24, looking to achieve $32 -- upside potential of 20%.  Yield 7.6%  

(Analysts’ price target is $31.84)

Stockchase Research Editor: Michael O'Reilly

EPD recently closed on a $3.3 billion acquisition of a large midstream energy processing company, allowing it to grow its status in the prolific Midland basin.  It put $2.5 billion of project expansions into play this year and still has over $4 billion in backlog.  It trades at 11x earnings and 2.1x book, while supporting a 20% ROE.  Quarterly results showed cash reserves holding while debt was aggressively retired.  It pays a great dividend backed by a payout ratio under 80% of cash flow.  We recommend placing a stop loss at $24, looking to achieve $32 -- upside potential of 18%.  Yield 7.4%

(Analysts’ price target is $32.16)

Stockchase Research Editor: Michael O'Reilly As a midstream energy services company, EPD does not face the same ups and downs as an energy producer. It makes its money on the margins its charges for its necessary services involved in processing, transportation and storage. It trades at 13x earnings, compared to peers at 21x and is trading under 2x book value. It has a great dividend that has grown for 23 consecutive years, backed a payout ratio of 85% (a bit high, but workable). It has smartly used some cash to paydown an estimated $1 billion in debt, putting the debt to earnings ratio at 3.5:1 -- very strong compared to peers. We would buy this with a stop loss at $18, looking to achieve $28.50 -- upside potential over 26%. Yield 8.03% (Analysts’ price target is $28.26)

(A Top Pick Aug 11/20, Down 9.3%)Stochchase Research Editor: Michael O'Reilly We have recommended to stop out of EPD as it has violated the $16.50 threshold we recommended. We see technical indications that the stock could retrace to $12. We will look for better opportunities elsewhere.

EPD is a dividend dynamo that is priced with 35% upside. The company provides midstream services for the energy sector. It is less about outright commodity prices, than it is about spreads between energy products. This makes it a less risky energy play. The higher payout ratio for the dividend at 84% merits watching, but the yield is very attractive at these price levels. We recommend a buy at current levels with a $16.50 stop loss. Yield 9.72% (Analysts’ price target is $24.57)