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Magellan Charts Strong Gains

By Robert Rapier on July 7, 2016

At the start of the year, MoneyShow featured its annual Top Picks report asking leading advisors for their favorite investment ideas for 2016. In the report, 85 stocks and funds were recommended, and the stock picks that we submitted on behalf of The Energy Strategist have been among the top performers year-to-date.

Last week I was interviewed by The Money Show to talk about the picks I submitted, as well as the outlook for the rest of the year. Here is Part II of that interview.  

Steve Halpern:  Now at the start of the year you recommended a company called Magellan Midstream Partners (NYSE: MMP), which is up 12%, also strongly outperforming the market, as did your pick, EQT Corp. (NYSE: EQT).  Can you give us a little background on Magellan, and discuss whether or not you still recommend this stock?

Robert Rapier:  Yes, Magellan is one of the largest midstream master limited partnerships, so it’s involved in transportation of refined products and crude oil.  It has a large asset portfolio across the country, and it yields about 4.2%.  

Management is very conservative.  I added that as a conservative investment where I felt like the downside was fairly limited. However we are presently approaching the Buy limit we set for the company.    

Like energy stocks, MLPs bottomed out in February. Previously I talked about the price of natural gas as an indicator that suggested it was undervalued. Another such indicator is the yield of the Alerian MLP Index (AMZ).

Previously, the Alerian yield had gone over 10% two times in the last 20 years. It went over 10% for the third time in 20 years in December, and it’s since run up by 35% or so.  Magellan Midstream is a component of the Alerian, but the whole sector to me was undervalued.  

That indicator said the sector’s undervalued.  MMP hasn’t gone up as much as the overall midstream MLP sector, but again it’s very conservative so your downside is limited.  

For more aggressive investors I would have maybe recommended something different, but that was a conservative pick.  It remains a conservative pick.  For somebody looking for income, and limited downside risk it’s still a buy.  

Steve Halpern:  Before I let you go, given that EQT Corporation and Magellan are stocks you like for the long term, but you’re not particularly or overly bullish on them for the near term,  perhaps you’d be kind enough to highlight a name or two that you are particularly encouraged by for the second half of the year.

Robert Rapier:  Well, we recently sent out an alert for BP (NYSE: BP).  BP had gotten hit pretty hard by the British vote to exit the EU, and we felt like it was being unduly punished.  

I haven’t been bullish on BP over the years very often, but I think in the wake of the Gulf of Mexico disaster they may have sold off more than they should have. They finally got the deal with the government settled last year.  

I feel like they are undervalued, and I notice they’re up 5% today.  They yield nearly 7%, and are generating decent cash flow. We think all things considered BP has come out of the Gulf of Mexico disaster in pretty good shape.  It could have been a lot worse for them.  They’re trading at a fraction of where they were before the disaster.  

I just added SolarEdge Technologies (NASD: SEDG), a solar inverter company to my own portfolio about a week ago.  They are profitable and growing rapidly.  I think the solar sector is poised to do very well over the next five to ten years.

Then Enviva Partners LP (NYSE: EVA), outside the oil and gas sector. Enviva Partners makes wood pellets, and they sell them into the European market. They are growing by leaps and bounds. They yield nearly 10%, and they just had their IPO a year ago, and year over year now they are the number one MLP performer over the past 12 months.

The oil and gas MLP sector has gotten beaten up pretty badly, even though they recovered some since February. They bottomed out in February but are lagging a bit. Enviva Partners has done quite well throughout the oil and gas downturn, and we continue to recommend for the long-term.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)


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