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The 5 Best Midstream Stocks of 2012

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Many midstream companies were able to reap the benefits of America's energy boom this year, posting record volumes and revenue, but some of them did a much better job at it than others. Today, we'll take a look at five big winners and what might be in store for them in 2013.

Let the good times roll
Without further ado, here are the best-performing midstream stocks of 2012:

SEMG Chart

SEMG data by YCharts

SemGroup (NYSE: SEMG  ) climbed an outstanding 42% this year. At the very end of 2011, SemGroup formed a master limited partnership with its assets tied to the Cushing, Okla., oil hub. The ensuing entity, RoseRock Midstream (NYSE: RRMS  ) , had an even better 2012 than its parent, jumping 48% in its first year as a publicly traded MLP.

SemGroup is developing its assets in some compelling unconventional plays, including the Niobrara Shale, the Mississippi Lime, and the Granite Wash. One of the most impressive statistics about SemGroup, in this Fool's opinion, is that fee-based business makes up 87% of its revenue. That's an extremely high percentage that other midstream outfits can only dream about right now. That sort of income reliability -- free from commodity risk -- is something investors love to see .

SemGroup will spend 2013 expanding its White Cliffs pipeline that carries oil from Colorado to Cushing, Okla. It is scheduled to complete six different growth projects next year, half of which are crude oil pipelines. As production in unconventional oil plays continues to grow, SemGroup is positioned to continue to perform well for investors .

Magellan Midstream Partners (NYSE: MMP  ) has been on a tear over the last five years, including 2012's 23% jump. The MLP had a record-breaking second quarter, but operating profit was down in the third because of hedging losses .

Overall, the partnership's fee-based business continues to increase, as does its distributable cash flow. Magellan has a host of new projects in the works for 2013, including construction of its BridgeTex pipeline joint venture with Occidental Petroleum (NYSE: OXY  ) that will bring much needed pipeline capacity to the Permian Basin.

Plains All American Pipeline (NYSE: PAA  ) grew 21% this year. The partnership reported quarter after quarter of impressive results in 2012, effectively utilizing its bolt-on acquisition growth strategy to improve its existing footprint. Management continues to have excellent vision of the industry, and Plains unitholders have reaped the benefits.

A mid-December deal to acquire five rail terminals from the U.S. Development Group means that Plains will ride 2012's momentum into the New Year, picking up in 2013 right where it left off.

Williams Companies (NYSE: WMB  ) was up 18.5% in 2012, an impressive return that comes on the heels of 29% growth in 2011. After spinning off its exploration and production business at the very end of last year, Williams is increasingly dependent on its MLP, Williams Partners (NYSE: WPZ  ) , to generate revenue. The company got stung a bit in the second and third quarters because of declining natural gas liquids pricing, but that was partially mitigated by increasing fee-based revenues at the MLP .

Looking ahead, Williams will benefit from the growing fee-based revenue at Williams Partners, as well as its new stake in Access Midstream Partners (NYSE: ACMP  ) , which it acquired in early December.

Enbridge (NYSE: ENB  ) grew more than 14% this year, and its performance is a reminder that a year of bad PR will not necessarily wreak havoc on a company's stock price. Enbridge has some of the most important midstream assets in North America, and is responsible for transporting close to 70% of the oil the U.S. imports from Canada.

2013 will be an interesting year for the company. It will be the first full year for Al Monaco in the CEO role, and he has a host of challenges to face. First and foremost will be currying favor with residents of British Columbia and Canadian government officials to gain approval of the Northern Gateway pipeline. There are many who suspect growing opposition has doomed the oil sands pipeline, which would be a significant blow to future growth at the company.

Foolish takeaway
One great year doesn't mean another successful year is bound to follow. North American energy production will continue to grow for the next few years, and these companies will have to work hard again and again to prove themselves and stay on this list.


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