Zacks Investment Ideas feature highlights: Buckeye Partners, Enbridge Energy Partners and Sunoco Logistics Partners

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Dec 19, 2012, 09:30 ET

CHICAGO, Dec. 19, 2012 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Buckeye Partners (NYSE:BPL), Enbridge Energy Partners (NYSE:EEP) and Sunoco Logistics Partners (NYSE:SXL).

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Pipeline to Profit

The idea that oil production in the United States is growing is not something that is new to most investors. One state that is seeing a significant reversal of fortunes thanks to oil gushers is North Dakota. It was recently released that oil production from that state increase 16,000 bpd to nearly 750,000 bpd, and is expected to continue to grow from there.

I discussed in a Real Time Insight how oil prices were moving lower and what might be behind the move. In the comments, John Blank, Kevin Cook and I talk about a few other macro ideas as well as US oil production.

But What is the Play?

Even if the price of oil goes down, there is still a good investment idea to come out of this. The oil has to get to the refinery before it is ready for downstream consumption. It will generally get to the refineries via pipelines. The pipeline companies are really not subject to the volatility in the price of oil as they are more of a toll both with long term contracts.

Let's take a look at a few pipeline companies that might be good investments for 2013. My first pick is Buckeye Partners (NYSE:BPL). It's not my first pick because I was born in the state of Ohio and a big fan of THE Ohio State University, but more because of its pipeline footprint. Its pipelines are in the Midwest, covering upper Illinois, Indiana, Ohio and Pennsylvania. That will serve to bring the oil to the areas of higher demand.

The company doesn't have the best track record when it comes to beating the street, but it may have turned the corner in the most recent quarter. The company posted EPS of $0.87, $0.14 or 19% more than the Zacks Consensus Estimate of $0.73. Prior to the most recent quarter, the company posted six straight misses. Hopefully the pipe is now flowing in the right direction.

BPL has an attractive valuation, with the majority of the metrics coming in below the industry average. Trailing twelve months PE of 17.8x is lower than the 23x industry average, but more impressive than that is the 16x forward PE multiple when compared to the 24.6x industry average. Price to book of 1.7x is below the industry average of 2.6x and the price to sales of less than 1x rounds out the metrics review. All of these measures suggest that BPL trades at a discount to its peer group.

BPL is currently a Zacks Rank #3 (Hold) but could move higher on our ranking system as earnings estimates increase and the company delivers more positive earnings surprises. The stock yields 8.8%.

Enbridge Energy Partners (NYSE:EEP) is another pick in the same space, and maybe a little more directly focused on the North Dakota space. Along with the other Enbridge companies, EEP is more focused on the Sandpiper project, a pipeline system that is dedicated to growing North Dakota oil fields. That pipeline system should run from western North Dakota through Minnesota and then connect to the US Mainline Expansion pipeline that that company operates.

Like BLP, EEP had a pretty poor record of beating the number. The most recent quarter was a positive earnings surprise of $0.02 or 7.4%. Prior to that, the company missed six straight reports. With more positive earnings surprises, the company could improve its Zacks Rank from a #3 (Hold) to a #1 (Strong Buy) or a #2 (Buy).

EEP is priced a little higher than BPL, but for the most part is in line with industry averages. The trailing and forward PE are slightly higher than the industry averages of around 24x. The price to book multiple of 1.3x is half the industry average of 2.6x and the price to sales multiple comes in right at 1x... also below the industry average of 1.4x. The stock also yields 7.8%.

Higher Ranked

If you are looking for a stock that has a higher Zacks Rank and is also in the same industry, look at Sunoco Logistics Partners (NYSE:SXL). The stock is currently a Zacks Rank #2 (Buy) and has a better track record and valuation than the two other stocks.

Six straight positive earnings surprises and growing revenues make this stock an analyst favorite and that is reflected in the consistent growth in EPS. The company started the year with a 2012 earnings estimate of $2.48, but closes the year at $3.96. That is quite a move.

The valuation of SXL is very attractive, with a forward PE of 12x being about half the industry average. Price to book of 3.5x is higher than the industry average of 2.6x but the price to sales of 0.4x more than makes up for the high price to book multiple.

SXL is not focused on North Dakota, but does have assets throughout the northeast and in Texas. So this is not as direct of a play on the plain states oil, but it does have exposure to the end product. The stock yields 4.1%.

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