MLPA: energy transport stocks in decline (NYSEARCA: MLPA)

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Investors continue to flock to the energy sector for momentum. The sector, although representing less than 5% of the S&P 500, is up sharply in 2022 while most others are clearly in the red. Certainly, high oil prices and the surge in natural gas futures are putting upward pressure on virtually all energy companies – from integrated companies to refiners to midstream/transmission companies. An ETF provides national exposure to the oil and gas pipeline and transportation niche.

The Global X MLP ETF (NYSEARCA: MLPA) is a way to invest in midstream pipelines and storage facilities that are less sensitive to energy prices, according to Global X ETFs. MLP companies typically pay massive dividends because these companies do not pay corporate income tax, says Global X ETFs. Structured as a C-corporation, MLPA owns 20-30 shares in the midstream/pipeline energy sector.

Digging into MLPA

The ETF is capitalization-weighted and since taxes are at the fund level, its distributions are generally tax-deferred, according to ETF.com. With quarterly rebalancing, investors gain diversified exposure to the fast-moving energy storage and processing group. The fund’s expense ratio is 0.46% with a bid/ask spread close to 0.12%, on average, both metrics are relatively attractive.

The ETF is concentrated with 30% in the top 3 holdings

top 10 holdings

Global ETFs X

By industry, the MLPA is diversified into three main industries. The portfolio has a P/E ratio of 11.8x, well below that of the S&P 500. The beta, however, is high at 1.7 compared to the broader market, according to the ETF’s website.

Diversified industry exposure

industry breakdown

Global ETFs X

In terms of performance, MLPA is up nearly 20% this year, but that’s less than many other energy-related ETFs.

MLPA up nearly 20%, underperforming most energy sector ETFs

2022 ETF Performance Heatmap

Finviz

Good profit numbers, weak stock price moves

A disappointing recent trend has been the poor reaction of stock prices over the past earnings season. While the sector saw massive EPS growth from a year ago, midstream stocks especially struggled to post decent post-earnings stock price moves, according to BofA Global Research.

Q1 earnings reactions: lackluster

MLP price reaction to earnings

BofA Global Search

Good, not great

While the ETF offers solid exposure to the midstream energy sector and presents a good valuation, the chart concerns me and ultimately makes me bearish on the space. The bulls would have liked to see a better break above the 2021 high almost a year ago. Instead, stocks have exploded at this high water level and are now exhibiting some bearish divergence between price and momentum (RSI). My view is that the ETF risks a false breakdown. Nevertheless, the relative performance is good compared to the S&P 500.

MLPA: Spray price with bearish divergence, support price to watch

MLPA stock price history

Stockcharts.com

The essential

It may be time to take a break from MLPA stocks. Although the valuation looks good, the chart suggests that the upward pressure is easing. I would wait for a break above $45 before opening a position. On the downside, there should be decent support near $37 and lower at $32.

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