We recently published a list of 10 Best Pipeline and MLP Stocks to Invest In According to Analysts. In this article, we are going to take a look at where USA Compression Partners LP (USAC) stands against other best pipeline and MLP stocks.

The global pipeline market is part of the energy sector, influenced by the demand and supply of energy. According to a report by Fortune Business Insights, the global pipeline transportation market reached a valuation of $20.57 billion in 2023. Forecasts indicate this market will expand to $34.38 billion by 2032. This growth trajectory represents a Compound Annual Growth Rate (CAGR) of 5.43% throughout the projected period. Notably, North America holds the leading position in the global market in 2023, capturing a 43.32% share.

The United States possesses an extensive and intricate network of pipelines, vital for the transportation and storage of oil, natural gas, and other energy products. The U.S. pipeline network is a critical component of the national energy infrastructure, facilitating the safe and efficient transportation of oil, natural gas, and NGLs, supporting economic activity and ensuring energy security. This infrastructure forms the backbone of the nation’s energy sector, ensuring the efficient movement of resources from production sites to consumers. In a report published by IBISWorld, the Oil Pipeline Transportation sector in the US stands at a value of $15.9 billion in 2024.

The pipeline industry is continuously evolving, driven by technological advancements and changing energy demands. Innovations in pipeline materials, monitoring systems, and leak detection technologies are improving safety and efficiency. The growing focus on reducing greenhouse gas emissions is also driving the development of pipelines for transporting carbon dioxide for sequestration and hydrogen for clean energy applications.

The IEEFA report highlighted that the fossil fuel sector has underperformed the broader market in 7 of the last 10 years. This shows a general trend of underperformance of the fossil fuel sector, which pipelines are a part of, when compared to the general market. However, during terms of economic recovery, increased industrial activity and consumer spending typically lead to higher energy demand, benefiting pipeline companies, leading to improved performance. Especially in terms of the current President’s administration.

Companies in the fossil fuel segment could benefit from the current administration’s potential rollback of climate initiatives, while renewables could face headwinds from reduced government support.

Pipeline companies have underperformed the overall market performance, especially over the past 5 years where TECH firms have been the centre of attention due to the popularity of AI amongst investors. This highlights an opportunity for investors seeking stable dividend yields or steady income streams. The pipeline industry can be attractive to investors during economic recovery due to its potential for stable cash flow and dividend payouts.

Master Limited Partnerships (MLPs) offer distinct advantages over traditional U.S. stocks, primarily centred on their unique tax structure and resulting higher yields.  Unlike corporations that face double taxation, MLPs are pass-through entities, meaning profits are distributed directly to unitholders (investors) without incurring corporate income tax. The current tax rate for corporations in the US is 21%, compared to MLP stocks which pay between 10-20%. This can translate to consistent distributions, often yielding higher than traditional dividend-paying stocks; with yields often to be in the range of 5%-8%, or more, whereas the market’s average dividend yield is much lower, generally around 2%.

Our Methodology

For this list, we used the Finviz stock screener to filter out pipeline and MLP stocks. Next, we manually searched for the average upside potential of each stock and selected 10 stocks with the highest values. The list below is ranked in ascending order of the upside potential as of March 14.

At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

An industrial facility emitting natural gas from large pipes, with workers in the foreground.

USA Compression Partners LP (NYSE:USAC)

Upside Potential According to Analysts: 7.47%

USA Compression Partners LP (NYSE:USAC) is headquartered in Dallas, Texas, and specializes in natural gas compression services across the United States. The company caters to clients in the oil and gas, independent producers, processors, gatherers, and transporters, providing essential compression for natural gas and crude oil operations. USA Compression Partners LP (NYSE:USAC) services portfolio extends to infrastructure applications, supporting centralized natural gas gathering systems, processing facilities, and gas lift applications in crude oil wells. Additionally, they offer natural gas treating services, including carbon dioxide and hydrogen sulfide removal, along with natural gas cooling and dehydration.

During the earnings call of Q4 2024, USA Compression Partners LP (NYSE:USAC) top line beat analyst expectations by $2.18 million at $245.89 million, and EPS of $0.18.

USA Compression Partners LP (NYSE:USAC) recently went through an organizational restructuring, with Chris Paulsen taking on the role of Chief Financial Officer (CFO) and announced Chris Wauson would be the new Chief Operating Officer (COO). Chris Paulsen took the Q4 earnings call as an opportunity to reiterate on the company’s continuing focus on improving performance and that it would not impact performance in the short term. He said:

“Right now, that is the focus, at least as it relates to our growth capital in 2025 is make sure that the relative standing and relative measures and debt measures of the business are not impacted in a significant way, especially as it relates to the ability to go out and refinance some of our fixed notes. So that’s the near-term view for me in managing the business.”

Moving forward, the company provided guidance on the EBITDA to range between $590 million and $610 million. Analysts predict a strong impact of these changes on the long-term performance of USA Compression Partners LP (NYSE:USAC), with an average twelve-month trading at $27.33, representing an upside of 7.47%.

Overall, USAC ranks 7th on our list of the best pipeline and MLP stocks. While we acknowledge the potential for USAC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than USAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure. None. This article is originally published at Insider Monkey.