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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Enbridge Energy Partners

December 31st 2011 Enbridge Energy Partners
NYSE Symbol: EEP
Industry: Oil& Gas pipeline
Price as of 12/30: $33.05


2011 is in the books and what a year it has been. The Dow finished up 5.5%, the Nasdaq declined nearly 2%, and the S&P 500 closed exactly flat. Pretty appropriate since it was one of the most volatile years in history with the major averages moving 1% nearly every other day since August. With so much volatility, investors sought shelter in defensive investments. Hence utilities and Treasury bonds outperformed all other sectors. Healthcare and consumer staples also performed well into year end. The financials were by far the worst performing sector followed by International markets. Europe remains a mess while and other major economies like China and Brazil have slowed in the last couple of quarters leaving the US market a safe haven for now. With US corporate balance sheets in great shape, it's no coincidence that companies like Union Pacific, Intel, GE, Nike, Merck, McDonalds, Whole Foods, and Starbucks have all performed well into year end following dividend hikes.

Looking into 2012, investors should remain defensive awaiting more clarity out of Europe and other areas of the world. Besides defensive sectors, investors have been flocking to alternative investments to reduce volatility and alleviate their portfolios from the market gyrations. Hence gold was a safe haven until recently. Another popular place to hide has been limited partners and master limited partnerships. This week, we'll feature such a company. The stock of the week is Enbridge Energy Partners. Enbridge Energy Partners maintains a diversified portfolio of crude oil long-haul pipelines, crude oil storage facilities and natural gas gathering and processing assets. As a midstream company, a high percentage off their revenues are derived from long-term, fee-based agreements, which provide a low-risk proposition to investors. A perfect business model in these volatile times.

In the third quarter, Enbridge increased its year-over-year revenue by $492 million and its net income by $528 million. The company has increased its revenue in each of the last four quarters and has increased its net income in three out of the last four quarters. The company should continue to see rapid earnings growth due to the fact it transports oil from two of the largest oil reserves in North America, Alberta oil sands and North Dakota Bakken Shale. Currently, Enbridge's pipelines transport 60% of Canadian oil sands and 45% of Bakken crude. In addition, President Obama's call to delay a final decision on a rival pipeline, TransCanada's Keystone XL, gives Enbridge Energy a competitive advantage over other US/Canadian pipeline companies.

Enbridge's valuation does not compare well with traditional stocks. Currently the stock trades for 20 times earnings, 1 times sales, and 2.5 times book value of $13 a share. The higher valuation is due in part to the higher yield and the fee based business model that provides consistent earnings. Enbridge has run up into year end so patient investors may want to wait for a better entry point. But longer term with the demand for oil escalating and historic low interest rates, Master Limited Partnerships like Enbridge will remain an attractive investment.