Shares in energy infrastructure master limited partnerships (MLPs) continued to rise Wednesday, the day after President Donald Trump signed executive orders meant to clear a path for U.S. government approval of both the Keystone XL Pipeline and the Dakota Access Pipeline.
Both pipeline projects are bitterly opposed by environmentalists and Native American tribes. But Trump has made developing U.S. energy projects a priority.
The Alerian MLP ETF (AMLP), was up an additional 1.3% to $13.05 Wednesday at noon after rising 2% Tuesday. The index hasn’t closed above $13 in over a year.
But the biggest gains were reserved for those companies that would benefit directly from the pipeline deals. MLP Energy Transfer Partners (ETP) and Sunoco Logistics Partners (SXL), which are partners in the Dakota Access Pipeline project, traded 3% higher Wednesday midday. Both are subsidiaries of Energy Transfer Equity (ETE).
Jay Hatfield, portfolio manager of InfraCap MLP ETF (AMZA) said Trump’s actions were “very bullish” for the MLP sector. He elaborated in comments to Barron’s:
In particular, the Obama administration’s move to halt construction on the Dakota Access Pipeline was very damaging to the sector since the pipeline had already received the proper approvals and ETP had spent billions on the construction prior to the move to stop construction.
In the future, the Trump administration is indicating it will expedite approvals of future projects, which should increase the growth prospects for the sector and reduce regulatory risk. We continue to see ETP as undervalued and expect the stock to outperform after its merger with Sunoco closes, which is expected during the first quarter of this year.
We also believe the MLP sector is undervalued relative to its long term fair value with average yields of over 7% vs. a normal yield in the 4-5% range which would be in line with BBB bond yields, which is the normal valuation benchmark for infrastructure MLPs.
He notes that Trump’s executive orders were expected by investors based on comments he’d made while campaigning.
