The Smartest Pipeline Stocks to Buy With $1,000 Right Now

Key Points

• Energy Transfer is an attractive combination of growth and high yield.

• Its balance sheet is in good shape, and it's moved back into growth mode.

• Genesis Energy has a huge opportunity with the Shenandoah and Salamanca offshore oil projects coming online.

• 10 stocks we like better than Energy Transfer ›

While artificial intelligence (AI) stocks have been leading the market higher, it's not the only sector where good investment opportunities exist. One area where investors can find some hidden gems is in the pipeline space.

Let's look at two master limited partnerships (MLPs) that you can invest in now. $1,000 can be a good starting point, and you can look to dollar-cost average more into them later.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Energy Transfer

Energy Transfer (NYSE: ET) has built one of the largest midstream systems in the U.S. Its pipes move natural gas, crude oil, natural gas liquids (NGLs), and refined products, and it has storage and processing capacity almost everywhere that matters. That means it benefits not just when more volumes are moving, but also when there are spreads to capture between regions and seasons.

The company has gone back into growth mode, with plans to spend about $5 billion in growth capital expenditures (capex) this year, up from $3 billion a year ago. The company is particularly well-positioned in the prolific Permian Basin, where it has two large natural gas takeaway projects in the works. The Hugh Brinson pipeline will help feed new power demand stemming from AI data centers in Texas, while the Desert Southwest pipeline will bring gas to the Arizona and New Mexico markets.

Its long-awaited Lake Charles LNG project is also closer to happening than it has been in years. If it does move forward, that would lock in long-term cash flows as global LNG (liquified natural gas) demand keeps climbing. Shell sees LNG demand growing by 60% by 2040, and this project would allow Energy Transfer to be a beneficiary of this trend.

Financially, the company is in as good a shape as it has ever been, with leverage at the low end of its targeted range. About 90% of 2025 EBITDA is expected to come from fee-based contracts, with it saying it has the highest percentage of take-or-pay deals in its history. Its distribution, which yields around 7.3%, is well covered, and management plans to keep raising it by 3% to 5% a year.

For income investors who want growth on top of yield, Energy Transfer looks like a solid buy.

Image source: Getty Images.

Genesis Energy

Genesis Energy (NYSE: GEL) has been cleaning itself up and setting up for a stronger future, and now it is almost time for the payoff. Selling its struggling soda ash business for $1.4 billion was the big move, and it used that money to pay off expensive debt and preferred units, which will save about $84 million a year in interest and preferred payouts. That puts its balance sheet in a much better place, and it gives the company a lot more flexibility going forward.

What really makes the story interesting right now is that two big offshore projects, Shenandoah and Salamanca, are starting to come online. These should push a lot more barrels through Genesis' offshore pipeline system and could add as much as $150 million a year in operating profit once they hit full production.

Shenandoah Phase One should be around 100,000 barrels per day by the end of September, and the company is already working to expand capacity to 140,000 barrels per day in 2026 to handle more wells coming online. The Salamanca project, meanwhile, is on track to start producing oil by the end of the third quarter and is expected to ramp to between 40,000 to 50,000 barrels per day.

While Genesis' marine transportation segment faced what it called a "sloppy" quarter, utilization was strong, which supports solid day rates. Genesis expects to generate free cash flow soon and wants to have its revolver balance paid down by the end of 2025. Once that happens, it should have room to start raising the distribution again.

Genesis is not as steady as a big midstream player like Energy Transfer, but it has more potential upside if these projects deliver. For investors willing to take on a little more risk, this is a name that could surprise to the upside over the next few years.

Should you invest $1,000 in Energy Transfer right now?

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Geoffrey Seiler has positions in Energy Transfer and Genesis Energy. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.