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Published Wed, Aug 12 20157:00 AM EDT

Credit Suisse told clients on Tuesday to buy shares of master limited partnerships, noting a high likelihood for the group to move higher. "We are upgrading the sector following the recent sharp selloff as the risks in MLPs appear to be skewed toward the upside," said Credit Suisse analyst John Edwards, boosting his rating on the industry to "overweight." One reason for the upgrade is the sharp rise in high-yield spreads above 500 basis points, which have been historically correlated with positive returns for the MLP index 100 percent of the time one year out, Edwards' analysis shows. As shown on the chart above, the current spread between the Alerian MLP Index, a benchmark of large- and mid-cap energy MLPs, versus the 10-year treasury stands at 528 basis points, 52 percent above the historical average spread of 347. The sharp rise in yields of MLPs this year has been on the back of a sharp selloff in the shares of those companies as investors questioned the sustainability of dividend payments amid a weak energy environment. Read More Most stocks in a correction. What to buy In fact, the Alerian MLP Index lost 25 percent of its value this year with three-fourths of the index components down at least 10 percent over the same period. According to Edwards, however, the current high yield spread could signal a reversal ahead as investors may be inclined to go bargain hunting, pushing up the shares and bringing down the yields. "Note that spreads are over one standard deviation above average and that while these levels have been reached in the past they have not remained at such spreads for prolonged periods of time," said Edwards. The analyst also highlights that the overwhelming majority of distributions have already been made and MLPs are tracking for 8 percent year-over-year growth (ex-upstream and coal), so the worries may be overblown. "Reversion to the mean yield ranges suggest total return outlook of over 40 percent," the analyst said, explaining that other valuation metrics also point to oversold territory. The Money Play: Within the MLP industry, Credit Suisse recommends looking for the more defensive names with low commodity exposure in the pipeline and natural gas areas. The firm's top picks include Genesis Energy (GEL), Tallgrass Energy Partners (TEP) and Energy Transfer Equity (ETE). "The whole sector is cheap with a median total return outlook of over 50 percent as of the close on Friday," Edwards said. To be sure, Credit Suisse notes that a further depreciation in the value of oil could take the entire sector down with it, even though many of these stocks are not directly exposed to crude prices.

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Credit Suisse told clients on Tuesday to buy shares of master limited partnerships, noting a high likelihood for the group to move higher.

"We are upgrading the sector following the recent sharp selloff as the risks in MLPs appear to be skewed toward the upside," said Credit Suisse analyst John Edwards, boosting his rating on the industry to "overweight."

One reason for the upgrade is the sharp rise in high-yield spreads above 500 basis points, which have been historically correlated with positive returns for the MLP index 100 percent of the time one year out, Edwards' analysis shows.