MLPA - MLPA: Compelling Valuation Low Volatility Waiting On A Breakout

2023-05-01 13:49:50 ET

Summary

• High-yield stocks have been soft performers so far in 2023.
• I see MLPA featuring a low valuation, but would prefer to wait for the technicals to confirm a breakout.
• I outline key price levels to watch on this low-valuation Energy play.

High dividend yield stocks have not performed well on the year. Growth has been in favor while income investors have been on the relative losing end of the rope lately. That comes after a strong year for value stocks in 2022, however.

I see shares of MLPA as a hold today, but recognize the fund features a low valuation, high yield, and potentially bullish chart. If the technicals align, this could be a great setup over the coming months.

High Dividend Yield Equities Relatively Weak On in 2023

According to the issuer , the Global X MLP ETF ( MLPA ) invests in some of the largest, most liquid midstream Master Limited Partnerships (MLPs). The fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive MLP Infrastructure Index. With a more than 10-year history of owning high-yield MLP equities, the fund’s total assets under management are now just under $1.4 billion while volume often exceeds 100,000 shares per day.

A 7.3% forward yield is what attracts investors, and with an annual expense ratio of 0.45%, it is not too pricey to hold the basket of the tax-favored niche of the Energy sector. MLPA holds just 20 stocks, but be careful when trading it as the median 30-day bid/ask spread is 0.17% - using limit orders during periods of low liquidity in the trading day is wise.

Digging into the portfolio, data from Morningstar show that MLPA is primarily a value ETF with its high yield in Energy-sector equities. It is also weighed highly in the mid-cap portion of the style box. What I like about MLPA right now is its low price-to-earnings ratio in the low teens while the price-to-book ratio, per Global X, is 2.5 using 2023 figures. Compared to the market, the fund has a 0.71 beta, so it has been less volatile than the broad market.

MLPA: A Mid-Cap Value Fund, High Yield & Momentum

The weighted-average market cap of the fund is $20.3 billion and just three industries comprise MLPA, so it is quite concentrated. What’s more, the top six positions comprise about 60% of the fund. Thus, keeping track of developments in those companies, listed below, is key.

MLPA: Heavy In 3 Industries, A Concentrated Portfolio

Seasonally, MLPA tends to perform very well in May before peaking for the year in early June on a total return basis, according to data from Equity Clock . So, there could be some juice in this trade over the next handful of weeks, but the back half of the year has, on average, been a time the fund struggles.

MLPA: May A Strong Month Historically

The Technical Take

A year ago , I initiated coverage on MLPA with a hold rating. Shares have done a whole lot of nothing since then. Notice in the chart below that the fund has not yet busted through key resistance in the $42 to $44 range. But with a rising triangle pattern, there is a bullish potential breakout brewing, I would like to see the RSI momentum indicator at the top of the chart notch a breakout along with price to confirm a hypothetical breakout.

For now, we must wait for the move at about $45 or so – preferably on a weekly closing basis. If that happens, then a measured move price objective to the mid-$50s is implied based on the size of the triangle. That would have confluence with the 2019 peak. Keep MLPA on your radar.

MLPA: Bullish Ascending Triangle Pattern, Eyeing A Breakout Above $45

The Bottom Line

I reiterate my hold rating on MLPA but recognize upside potential both on valuation and with the chart. This is one I will keep tabs on this summer – it could be a mover later this quarter.

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