Midstream MLPs Still Attractive

In the wake of one of the toughest recessions in US history, many believe the market has undergone a  long-term paradigm shift (and there is much in the way of data to support this).  While this may be true for stocks, the underlying fundamentals which make investing in midstream Master Limited Partnerships (MLPs) attractive continue to endure.

Tackling the Initial “So What” Question

When evaluating investments, I like to start with a pessimistic approach and ask “So What”?  If I can’t come up with a compelling answer quickly, then I know I’ve got a problem.  So when I came across investing in MLPs I was surprised that the initial, basic argument was easy to formulate (even in this economy):

• The demand for energy in the US will continue to grow (forecasts agree)
• Midstream MLPs (e.g. pipelines) are required to transport commodities to meet this demand
• This demand is relatively inelastic (regardless of commodity price, demand for service remains)
• Barriers to competition are very high (sure, I’ll just build a pipeline real quick and compete…)

So, this gets us past our initial “So What” and the basics (Warren Buffett would be proud).  In my next post, I’ll drill down further and show you how other existing factors make MLPs even more attractive from an investment perspective.