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3 Energy Stocks We Can't Help but Love

By Tyler Crowe, Rich Smith, and Jason Hall – Updated Oct 13, 2016 at 8:11AM

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We want to find reasons not to like TPI Composites, Enterprise Products Partners, and ONEOK, but we're struggling to do so.

Image source: Getty Images.

It's not always easy to find an investment in the boom-and-bust energy industry that you can reliably trust to be a long-term investment, but they're out there. When you do find them, though, they tend to be stocks you want hang on to through thick and thin -- so much so that you might even get a little attached. 

We asked three of our contributors to each highlight a stock they're particularly fond of and discuss why they like it so much. Here's what they had to say.

Growing like the wind

Rich Smith: Based in Scottsdale, Arizona, tiny TPI Composites (TPIC -0.87%) is one green energy play you've probably never heard of -- but it's one your portfolio could grow to love.

Because that's what TPI Composites is all about: growth.

A maker of composite wind blades for wind turbines, TPI sells its wares throughout the United States and down into Mexico, across the seas to Europe, and even as far afield as Asia. And the sales at this Arizona blade maker are growing like a tumbleweed. From $156 million recorded in 2012 (the first year for which S&P Global Market Intelligence has data), TPI's sales grew to $215 million in 2013, then $321 million in 2014, and $586 million in 2015. Over the past 12 months, revenue hit $711 million -- twice what it was 12 months ago -- and is actually accelerating from rates posted in years past.

What's more, in contrast to so many other "green energy plays," TPI is more than just a sales growth story. This is a company with the wind at its back, and cold, hard profits in the bank. Over the past 12 months, TPI recorded $22.6 million in GAAP earnings. Cash profit backs up 93.4% of those earning, too -- $21.1 million in free cash flow.

Mind you, growth and quality such as this does not come cheap. At $677 million in market capitalization, TPI shares currently cost 30 times earnings and 32 times FCF. These are pricey valuations, and TPI stock is therefore not one for the faint of heart. That said, if TPI can maintain anything near the rate of sales growth it's posted in recent years, and continue growing earnings to match, I think the stock could make for an excellent value idea -- and a high-growth investment to boot.

The gold standard in Master Limited Partnerships

Tyler Crowe: It's hard not to love a company that has a 6% dividend yield and a streak of raising that payout long enough that it's starting to come up in Dividend Aristocrat conversations. That's why Enterprise Products Partners (EPD -0.60%) is such a compelling investment. What makes Enterprise unique isn't its energy pipeline and logistics network, which is one of the largest in North America, or the fact that it has been able to maintain its profitability through the downturn in the energy market thanks to fee-based contracts that act like a tollbooth for oil and gas producers. The thing that makes Enterprise a great investment is that its management team has been and continues to be great stewards of shareholder capital. 

What I mean by this is that management recognizes why investors are compelled to own this stock. It pays out a decently high yield that has increased every quarter for close to 12 years. To maintain this investment thesis, the company is very fastidious about the investments it does make to grow its asset base by selecting potential projects that have high return rates and complement its existing network. This is in stark contrast to some other pipeline and infrastructure companies that will pursue disparate projects with less than stellar return rates to grow for growth's sake. 

Management is also keenly aware that even though most of its revenue is protected with those fee-based contracts, it's in the commodity business, and that will have some variability. Therefore, Enterprise has a policy whereby it elects to conservatively increase its payout and retain some cash to leave wiggle room when times are bad, or to reinvest in the business when business is booming. These are the sorts of moves you want a management team making with your investment. That, to me, is what makes Enterprise Products Partners such a great investment. 

An ideal income growth stock for retirement investors

Jason Hall: It's hard not to love a stock that's gone up nearly 110% so far this year, which is the case for ONEOK, Inc. (OKE 2.13%)

OKE Chart

OKE data by YCharts.

But there's more to it: The company has a great opportunity to continue growing as demand for natural gas continues to expand in North America. ONEOK's network of pipelines and gathering is set for strong growth for years to come, and that should lead to regular increases in ONEOK's dividend, which -- even after a more than doubling of ONEOK's stock price -- still yields 4.7%. 

And beyond the strong operating location and network ONEOK has -- which is actually owned and operated by ONEOK Partners LP (OKS), the master limited partnership that ONEOK controls -- ONEOK is an ideal investment for your retirement accounts since it's not an MLP itself (which could leave you owing taxes on dividends even in an IRA or 401(k)).

Put it all together, and you have a great company whose stock has strong price appreciation potential, is a wonderful dividend source that's likely to grow over time, and is an ideal vehicle for retirement savings. That's why I can't help but love ONEOK. 

Jason Hall owns shares of ONEOK. Rich Smith has no position in any stocks mentioned. Tyler Crowe owns shares of Enterprise Products Partners. The Motley Fool owns shares of and recommends ONEOK. The Motley Fool recommends Enterprise Products Partners. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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