Markman: Buy Western Gas Partners (NYSE: WES)

When the markets turn more volatile, investors aim to find high-quality, low-volatility stocks that have not yet broken out and become too expensive.�

According to my propriety model, a good pick along these lines is Western Gas Partners (NYSE: WES), a master-limited partnership (MLP) that yields 4.3%.

It is a very typical MLP that operates and develops midstream energy assets in east and west Texas, the Rocky Mountains and mid-continent. WES focuses on gathering, compressing, processing, treating and transporting natural gas primarily for its one-time parent company, industry powerhouse Anadarko Petroleum Corp. (NYSE: APC).

To put the MLP�s business in plainer English, WES is basically a pipeline and refinery company that has one very large customer that isn’t going away: Anadarko.

While the transmission business gets most of the attention, the refining of natural gas liquids (NGLs) is getting to be a much bigger business these days — especially since the Bakken Shale, the biggest new find in decades, is extremely rich in NGLs. These liquids are refined under heavy compression into products like propane, pentane, ethane, ethylene and butane, which have a much wider use than ever as industrial fuels and petrochemical and plastics feedstock.

Western Gas Partners� stated purpose is to increase its cash dividend over time — the MLP equivalent of growing earnings — by pursuing accretive acquisitions, attracting third-party gas producers to its network, and hedging the price of natural gas effectively. Its strengths are the relationship with APC, its predictable cash flow, its well-positioned assets and its experienced team.

How close is this MLP to Anadarko? Well, four of its nine directors may be independent, but the rest are all current Anadarko employees. So it’s very beholden to APC, but it still goes to financial markets for expansion capital, so that does give it some extra discipline.

Its debt levels are well below the 50-50 debt/equity levels typical of its midstream MLP peers.

Western reported good earnings (as usual) on Thursday. This MLP is a keeper.