2020 is off and running. The Dow Jones has topped 29,000 for the first time. But many (including yours truly) still believe this is going to be a challenging year for stocks.
Generally speaking, I believe this year will be closer to the historical average returns for the market.
And it won’t be a smooth ride either.
As we saw at the start of the year with an unexpected attack by the United States on Iran’s leadership, volatility will be the rule of thumb in 2020.
It doesn’t take a genius to see the potential hurdles out there.
But that doesn’t mean there aren’t winning stocks out there.
There are 20% gains or more to be had. All you have to do is own the perfect stock.
The perfect stock is a combination of safety and growth. The MLP we’re about to show you today is the perfect example of both.
Safety can be found with a dividend that will be likely paid no matter what the overall market is doing. We also want growth in terms of earnings acceleration that will be used to support and even increase the dividend.
It’s a pretty simple formula. But where do we find stocks like that?
The answer is master limited partnerships (MLPs).
These dividend payers are going to be the biggest winners in 2020. The combination of growth and income will be unmatched.
Because most MLPs are tied to the oil market, growth will come from the easy monetary policy currently in place around the globe.
We are in an inflationary environment despite the nonexistence of rising prices in the near term.
While prices may not be going up, asset prices, including oil prices, are rising.
That’s the nature of monetary economics.
Low interest rates can only result in rising asset prices. It’s just a matter of time.
That time is 2020.
Perhaps that’s why my favorite MLP is already up almost 13% for the year in just a couple weeks of trading.
This Is the Best MLP to Buy Right Now
Hess Midstream Operations LP (NYSE: HESM) is my favorite MLP right now.
I wrote about Hess in the middle of December, calling the stock one the of the top MLPs to watch in 2020.
It’s not just a stock to watch. Hess is the perfect stock to own right now.
The basic premise of my take on MLPs starts with the dividends. Hess is currently paying a dividend of 6.78%.
It’s the attraction of that high dividend that creates an arbitrage from a growth perspective.
Interest rates are stubbornly low and will likely stay that way in the near term.
That means income investors are scrambling.
Their go-to option over the last couple of years has been REITs. Many REITs have appreciated greatly to the point that valuations are excessive.
It’s always dangerous buying an overvalued stock, no matter how high the dividend. That’s one of the reasons I’ve turned my attention to MLPs.
The valuation at Hess, for example, is still extremely attractive. Even more so when you consider the underlying asset, oil, is appreciating.
At current prices, analysts expect Hess to grow earnings at a 24% clip from the current year to the next. Shares trade today (even with a 13% pop to start the year) for only 18.5 times 2019 estimated earnings.
Given that earnings estimates are too low in a rising oil price environment, Hess shares are even more attractive.
But the timing is urgent here. Shares will not stay at their current price long.
For those that delay, the dividend at the price purchased is likely to be lower.
I cannot conjure a scenario whereby that does not happen. The dividend and earnings growth is simply too attractive.
That’s why the stock is up 13% in just two weeks of trading in 2020 – and why shares will appreciate further as the year unfolds.
Hess is the perfect stock to own right now.
— Jamie Dlugosch
Source: Money Morning