A Stock with 15%-Plus Expected Returns

Following is a sampling of stocks that recently jumped to 5 stars. By way of background, we award a stock 5 stars when it trades at a suitably large discount--i.e., a margin of safety--to our fair value estimate. Thus, when a stock hits 5-star territory, we consider it an especially compelling value.

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Crosstex Energy, Inc.
Moat: Narrow | Risk: Below Average | Price/Fair Value Ratio*: 0.83 | Three-Year Expected Annual Return*: 16.3%

What It Does:  Crosstex Energy Inc. (XTXI) is the general partner of  Crosstex Energy LP , a midstream natural-gas master limited partnership (MLP) that gathers, transports, processes, treats, and markets natural gas and natural-gas liquids, primarily in Texas and Louisiana. The company operates gas gathering systems in the Barnett Shale, South Texas, and Louisiana, owns large processing operations in South Louisiana, and operates the largest natural-gas treating operations in the Gulf Coast region.

What Gives It an Edge: Morningstar analyst Jason Stevens believes Crosstex has dug a narrow economic moat by building a large asset base and offering producers a variety of services and market-access options. Through a string of acquisitions, Crosstex has assembled an impressive asset base of natural-gas gathering and transmission systems and treating and processing facilities, primarily in Texas and Louisiana. These assets enable the company to provide a full suite of field services to natural-gas producers, who pay Crosstex to gather natural gas at the wellhead, remove any impurities, separate the gas from natural-gas liquids, provide compression and transportation to market hubs or interstate pipelines, and market their natural gas to utilities and end-users. Because of the incentive distributions common to most MLPs, XTXI sees its share of XTEX's cash distributions increase as XTEX raises its distribution to common unitholders.

What the Risks Are: Crosstex is betting on the Barnett Shale to provide earnings growth for years to come, which, in Stevens' opinion, is perhaps the largest competitive risk facing the company. Crosstex faces stiff competition from other midstream companies for producers' gas. Any further declines in Gulf Coast gas production may further reduce the earnings power of the company's South Louisiana Processing assets. Additionally, evolving industry regulation, spills, and explosions are always risks.

What the Market Is Missing: Barnett Shale production is booming, with hundreds of new wells completed each month. Crosstex connects these wells to the nation's pipeline system, and booming production means more and more gas flowing through Crosstex's gathering systems and processing plants, which Stevens expects will translate directly into robust distribution growth. Given the credit crunch, some investors may fear that Crosstex's growth is constrained by reduced access to debt markets, but Stevens hasn't seen much evidence of financing difficulties in the MLP sector. Moreover, much of Crosstex's near-term growth will come from past projects and deals.

Other New 5-Star Stocks
 Allscripts Healthcare Solutions (MDRX)
 Schering-Plough 

* Price/fair value ratios and expected returns calculated using fair value estimates, closing prices, and cost of equity estimates as of Friday, Jan. 11, 2008.