1 best stock to buy on the turbulent October market – The Fool Motley

A return of volatility has shaken the market this month. In the last three weeks alone, stocks have fallen by around 5%, which has puzzled many investors.

But sales like this are often a great time to buy good long-term stocks. One of the best options to consider in the current turbulence is Midstream Magellan Partners (NYSE: MMP), which has lost more than 5% of its value in recent weeks. As a result, investors can get an even better starting price on one of the major limited partnerships (MLPs), potentially preparing for higher returns than the market in the coming years.

A good deal for a lower price

Magellan Midstream Partners has one of the strongest financial profiles in the flow-through industry. The company enjoys one of the best credit ratings among MLPs, thanks in part to its low debt ratio, which is 3.4 times far below the comfort level of about 4.0. most of his peers.

At the same time, the company is managing a strong portfolio of intermediate assets, including the country's longest refined petroleum product pipeline system, which moves 1.4 million barrels of gasoline and diesel per day to maintain our economy in activity. These assets provide the Company with stable cash flow as it has long-term contracts with its customers for the capacity it owns. This ensures that he is paid in the good and the bad times. For this reason, Magellan Midstream is confident that it can generate $ 1.05 billion in cash flow this year.

It's more than enough to continue paying its lucrative distribution to investors, which is now reporting 5.9% after the recent sale. Overall, the company covers this payment with a comfortable cash flow of 1.2 times. This leaves Magellan with sufficient excess liquidity which, combined with its strong balance sheet, provides it with the necessary funds to continue expanding its portfolio of intermediate assets.

Many heads forward

Magellan Midstream Partners is investing $ 2.5 billion in various projects to expand its footprint. One of the most important is a joint venture with a refiner Valero Energy (NYSE: VLO) to build a new marine terminal in Pasadena, Texas. The partners are investing $ 410 million in a two-phase project to build storage and berthing capacity at the site, as well as connect it to two Valero refineries in the area. The first phase should come online in January, while the second should follow a year later.

Magellan and Valero are working on another project to boost the flow of refined products in the central part of the country. The $ 425 million expansion project is expected to be operational by the middle of next year.

Meanwhile, Magellan, Energy transfer partners (NYSE: FTE), MPLX, and US holdings of Delek go ahead with a large-scale pipeline coming out of the Permian Basin. The 600-mile pipeline will go to both the Nederland, Texas terminal, Energy Transfer and the Magellan terminal, east of Houston. The pipeline will help address current pipeline issues in this region when it enters service in mid-2020.

These projects give Magellan the confidence that it can grow its high yield distribution for investors by 5% to 8% in 2019 and 2020, in addition to the 8% increase expected this year. At the same time, the company has over $ 500 million in additional expansion projects under development that it could build in the future, including the potential of more than twice the size of its joint venture at the Pasadena Marine Terminal. with Valero. These future additions should give the company the fuel needed to continue to increase its payments in the coming years.

Strong revenues and growth prospects for a lower price

Thanks to the recent market turbulence, investors now have the opportunity to buy Magellan Midstream at a lower price and obtain even higher returns. This increases their chances of generating above-market returns since the combination of the company's return of close to 6% and a high single digit growth rate suggests that investors could generate a total annual return. from the lowest stage of adolescence. This high return potential associated with such a low risk investment makes it an excellent option to consider in the current turmoil.

Matthew DiLallo has no position in the mentioned actions. Motley Fool recommends Magellan Midstream Partners. Motley Fool has a disclosure policy.