A managing director at BMO Capital Markets is all-in on shale, and all-in on a few companies in particular. Why does he pick Williams, Kinder Morgan and El Paso, and will investors follow suit?

Carl Kirst, managing director and senior research analyst at BMO Capital Markets Corp., sees the “ongoing expansion of shale supply and the shift to NGL-rich supply sources” as a trend that  “continues to propel long-haul transportation needs for natural gas and liquids, as well as the midstream infrastructure side,” he tells The Wall Street Transcript, in an April 2 interview.

Shale stocks could break out in areas beyond drilling and exploration. “Increasingly, as shale technologies are being applied to oil, we have oil transportation opportunities,” he adds, saying that a weak bond market is steering more investors to growth and income plays – a “sweet spot” for shale oil right now.

“So when you combine that with the fact that we are still in a 2% Treasury curve, both in the U.S. and Canada, the demand for yield, especially for companies that have yield plus growth, makes for a compelling investment.”

Those factors, taken together, could help boost the shale market by 10%, he adds.

Kirst sees increased demand for oil services and equipment in key shale oil and gas regions like the Bakken, the Permian, and in Mont Belvieu and Conway.

“Each region has its own supply/demand constraints,” he says. “I think we are going to continue to see a need for new infrastructure in the Bakken. We are going to continue to see new infrastructure from the Permian, as well as between Mont Belvieu and Conway. A lot of this infrastructure has been proposed and is expected to come on line in the next two to three years, but these are still the areas that are getting a great deal of attention, as well as, of course, something that's been dominating our media headlines for the last year -- getting Western Canadian crude oil down to the U.S.”

There are a few stocks in particular that Kirst likes in the shale market -- especially Williams, Kinder Morgan and El Paso Corp. He says that while “you can’t retire off of these stocks” (each has had a nice run-up in share prices, taking a lot of growth out of the equation) he still refers to them as his “top picks”.

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Company                    Share Price                 1-Year Target Est.     EPS

Williams                       $31                              $35                              0.63

Kinder Morgan            $37                              $36                              0.25

El Paso                        $30                              $28                              0.18

Source: Yahoo Finance

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Here are a few notes from Kirst on each stock:

On Williams - One thing we've done this year is taken down our expectations for what really is the upside with some of these names. That being said, Williams, for instance, can deliver a 10% to 15% dividend growth rate over a multiyear period of time, and I think it's going to prove to be a very good stock to own.

On Kinder Morgan - Kinder Morgan year-to-date is up 16% and is at $37, so that one is beginning to perhaps be a little bit closer to fair value. I would say there is still 10% to be made in the merger over a very quick three months. From that standpoint, time adjusted, it's still one that screens very well to us with what we view as very low risk.

On El Paso - We liked (buyout target) El Paso because it was a cheap way into Kinder Morgan. We thought Kinder Morgan was undervalued, so you wound up getting an arbitrage lift plus the upside of Kinder Morgan. When we were talking about upside on Williams and El Paso, we are talking about a 10% to 15% (increase). We are not talking about the 40% to 50% upside we were talking about two years ago because the stocks were so disassociated from their sum-of-the-parts valuation.

Kirst also likes TransCanada (trading at $43 per share with an estimated one-year target price of $46) and Enbridge ($39 per share with a target of $41). He says the former offers a good “one-year time horizon” and the latter offers “phenomenal growth opportunity”.

Another shale-oil stock that Kirst doesn’t mention – but others do – is Kodiak Oil & Gas ($9.37 versus a $11.36 one-year target price estimate). On April 5, the investment website Seeking Alpha called KOG “a winner” in 2012, and said the company, which is rapidly developing a stronger presence in the Bakken, has a “hard charging expansion strategy” that could attract investors.

There is no shortage of potential shale oil and gas plays for investors to pick over. But if you haven’t made a list yet, the one Kirst lays out isn’t a bad place to start.