10/17/14: Crude Risks Counsel Caution

By Igor Greenwald • October 17, 2014

Portfolio Action Summary

  • Spectra Energy (NYSE: SE) added to Conservative Portfolio. Buy below $42
  • Delek Logistics (NYSE: DKL) added to Growth Portfolio. Buy below $42
  • Atlas Resource Partners (NYSE: ARP) downgraded to Sell in Aggressive Portfolio
  • Teekay LNG Partners (NYSE: TGP) downgraded to Sell in Growth Portfolio
  • Vanguard Natural Resources (NASDAQ: VNR) downgraded to Sell in Aggressive Portfolio
  • Boardwalk Pipeline Partners (NYSE: BWP) upgraded to Buy below $19 in Aggressive Portfolio
  • Buckeye Partners (NYSE: BPL) shifted to Aggressive Portfolio and downgraded to Hold
  • DCP Midstream Partners (NYSE: DPM) downgraded to Hold in Growth Portfolio
  • Genesis Energy (NYSEL GEL) shifted to Growth Portfolio, remains a Hold
For more information, please see Portfolio Update in the October issue.

Stock Talk

Comments Guidelines
tomC

tomC

Robert, Igor, et. al.

I have a couple of “constructive” criticism comments that perhaps your could address.

In your 11:45 AM (Fri – 10/17) FLASH….Sell VNR and ARP….there was NO MENTION of SELL TGP. Maybe my mail server put this in the SPAM folder, but I do NOT see any references to TGP on the site as a FLASH SELL. I expected a HOLD or Sell 50%, but it was ALL. Now, in fairness, another well known and highly rated Income Newsletter has had VNR and they did not change…Buy UP TO $26 in their October 1 (which was published ON TIME) update. But they have a Hard Stop 20% of your Initial Purchase. So, I saved a few % by “Holding ON” based on your comments here and let it drop to 35% and it then rebounded….and I got out with a 17% loss.

However, the timing of the info are a little less that what I, as a long time subscriber, expect.

In your 7:05 PM “October 1 #64 MLP Edition” email, I read most of it and was a bit SHOCKED. You NOW say to sell TGP (Teekay LNG Partners). I have to ask….What happened in the 7 or so hours between the FLASH SELL on VNR and ARP? WHY did you NOT send out a FLASH on TGP?

In these volatile times, you have been more of a “Steady as she goes….”, then we get TWO sells and then later in the day, ANOTHER…..AFTER the Market has closed.

Please comment…

Thanks,

Igor Greenwald

Igor Greenwald

I don’t believe in hard stops, and I also don’t believe in making any portfolio recommendation lightly. I put out an alert on ARP and VNR in the morning once we’d determined we’d be recommending the sale of these MLPs, because I believed subscribers would benefit from having that information as early as possible. The remainder of the portfolio recommendations, including the Sell on TGP had not yet been determined at that time, which is why they were included in a later alert tied to the publication of the October issue.

Chesapeake

Jamie Beneke

Igor:
Concerning your sell downgrade on ARP, I have a considerable loss that I am not interested in taking at this time.
I have been buying as the market dropped but I am still in the hole about $3 a share. Specifically, what are the risks to the downside?

Igor Greenwald

Igor Greenwald

The risk is that the recently weak oil and gas prices get more so and ARP is forced to lower its distribution, causing a lot of downside volatility. With the yield where it is, it’s not as if the market is blind to this risk, but I’d still expect a big downside flush if it happened. I don’t think that’s the probable scenario, but it’s certainly a possibility. I think this can be owned by speculators with a strong stomach, and Leon Cooperman, who’s a smart guy, hasn’t bailed out so far. But I believe the reason to own an MLP is for its business value proposition, not the yield. In midstream, the value is often plain to see. In upstream, the MLPs are overleveraged and overpriced relative to superior options among corporate producers. So while the commodity price risk was the catalyst, it wasn’t my only rationale, and if you disagree with my view of upstream MLPs in general you should certainly discount the Sell call accordingly.

Mike T

Mike T

How does the valuation and prospects for shell pipeline partnership lp shlp ipo look?

Igor Greenwald

Igor Greenwald

The valuation on day one of trading looks challenging at first glance at more than 50x recent annualized distributable cash flow. We thought yesterday a $29 buy limit would prove sufficient, but no such luck. We will still be adding SHLX to the Growth Portfolio as of today’s close, and while our original buy limit may have been optimistic our interest in the MLP is real and one would probably be OK nibbling here even at this price. Some significant component of the current valuation is effectively a call option on the attractive assets Shell is expected to drop down to SHLX over time.

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