A few words about this ‘Rapid Roundup” of energy names before I start reeling them off (or as many as I can reasonably do).
My request for stock names was answered with more than 100 emails from subscribers. I cannot tell you how heartening it is for me to receive such enthusiastic interest in my work – mostly when I check my emails and comments they are limited to trolling or taunting, an expected hazard but still no fun. The quantity and quality of your responses gave me great pleasure and I thank you. I cannot mention your names in this column, but please know I greatly appreciate each one of your requests.
First the macro situation: Energy continues to see a rally from ridiculously low numbers, but despite some drops in US (and OPEC!) production, there are still stockpile gluts everywhere which should limit the upside, at least for now. If you haven’t begun accumulating long-term names, any down-day in oil would provide a chance to start – if you’re trading, however, I think that gains accumulated when oil was in the 20’s should be taken. Now, let’s get to some names:
Let’s start by trying to bite off two big subsectors in one go:
1- Pipelines: I’ve made clear that the dropping production inside the U.S., combined with ‘lower for longer’ oil and gas prices make the growth potential in the mid-term for pipelines difficult, and therefore their distributions suspect. I put faith in only one of these in the last 6 months – KMI – and you all know how that worked out. I won’t do it again; there are better places to invest. In one case, I’ll make a quick judgment because it’s a microcosm for what’s currently wrong with the subsector: Energy Transfer Equity (ETE). Like other pipelines, the debt load is huge, there’s no cash on hand and despite their great subordinate companies (Sunoco, LNG, ETP), I’m not at all convinced about long-term stability of the distribution (which is what all of these are ultimately about). Now, if that wasn’t enough to convince, throw in the Williams merger (WMB, WPZ). ETE definitely overpaid, the cash kicker adds another $6B in debt and they’ve needed a secondary anyway – at the worst possible time. They’re definitely going to strip distributions at ETP to save their bond status and no matter what they say, bailing on the Williams deal would be a godsend for them.…