Monday Mailbag: MLP Merger, Biotech Breakthroughs, Big Blue’s Big Bet

Try to wrap your head around these numbers:

The number of email users worldwide is 3.7 billion, and the amount of emails sent per day is 269 billion. That means 2.4 million emails are sent every second and 74 trillion emails are sent per year. Those statistics come from a 2017 report released by the Radicati Group, a technology market research firm.

According to management consultants McKinsey, the average “knowledge worker” spends 28% of their workweek managing email.

Amid this sea of digital debris, your emails to Investing Daily stand out as valuable. They tend to share important knowledge, ask insightful questions, or serve a corrective function. Let’s dig into the latest batch.

Eying a midstream merger…

“How will the merger with Sunoco Logistics affect ETP?” — Rick M.

Rick is referring to the recent merger between the midstream master limited partnerships (MLPs) Energy Transfer Partners (NYSE: ETP) and Sunoco Logistics Partners. The two entities closed their merger on April 28.

 The merged entity retained the name “Energy Transfer Partners” and now trades on the New York Stock Exchange under the ticker symbol ETP.

Dallas-based Energy Transfer Partners owns and operates a diversified portfolio of energy assets. The MLP’s natural gas operations include miles of natural gas gathering and transportation pipelines, natural gas treating and processing assets in Texas and Louisiana, and several natural gas storage facilities in Texas.

Sunoco brought complementary pipeline, terminal, and marketing assets to he table. ETP’s general partner is owned by Energy Transfer Equity (NYSE: ETE).

I passed Rick’s question along to Jim Pearce, chief investment strategist of our flagship publication Personal Finance and director of portfolio strategy for Investing Daily. Jim points out:

The merger and resultant operating efficiencies should stabilize ETP’s balance sheet in the short run. From a longer-term perspective, it remains to be seen if ETP eventually is combined with ETE, the timing of which may be influenced by the direction of the price of oil over the next year.

ETP reported quarterly earnings last week that came in below expectations, but the unit price has stabilized above $22 which is roughly 10% below its merger-adjusted value.

Since we own ETP in the PF Maximum Income portfolio, our greater concern is the annual distribution payment, which was also declared last week (and annualized out to a 9.5% yield), so we are going to hang on to it.”

A new century in bio-engineering…

“Your thoughts on XXII?” — Jim A.

In addition to researching THC-reduced cannabis medical treatments, the biotech firm 22nd Century Group (NYSE: XXII) is creating genetically engineered tobacco plants that have either 97% less nicotine than conventional strains, or a strain high in nicotine that allows for the lowest tar-to-nicotine ratio in the cigarette industry.

The low-nicotine variety has proven effective in helping smokers kick the habit and is gaining the support of tobacco scientists worldwide. In independent clinical studies, XXII’s very low-nicotine tobacco has demonstrated remarkable efficacy as a smoking cessation aid. This small-cap stock is worth watching.

Jim Pearce weighs in on 22nd Century:

“Like any penny stock that doesn’t yet earn a profit it is quite risky, but as far as those types of stocks go I think this one has a better than average chance of making it through to profitability if it can reduce/eliminate THC to a level that effectively eliminates concern over federal marijuana laws.”

Big Blue: Still in the game…

“Any thoughts on IBM? Would Watson really grow as projected? Is it still considered a long-term hold post Buffett’s sell off?” — Abhijit D.

IBM (NYSE: IBM) belongs to the PF Growth Portfolio. Although unfairly written off by some analysts as a tech dinosaur, Big Blue is fostering internal entrepreneurship, so-called “intra-preneurship,” and embracing new technologies.

Abhijit is referring to a statement made by Warren Buffett on May 4, in which the “Oracle of Omaha” explained that he recently pared back his position in IBM by a third because “I don’t value IBM the same way that I did six years ago when I started buying (it).”

Here’s our view: The company is defying the naysayers and making strategic moves that will prove profit catalysts for the company as well as its investors.

In the exploding field of medical information technology, IBM has been on an acquisition spree and gobbling up smaller, highly innovative companies. The company also is making a shrewd and well-funded emphasis on artificial intelligence (AI), via its Watson initiative.

AI is one of the hottest areas in technology. Regardless of Buffett’s pullback, the company’s Watson efforts should drive long-term revenue and earnings growth. And don’t forget: Buffett still holds a sizable stake in IBM.

Target’s transgender troubles…

In the previous Mailbag, I ran an excerpt of a reader letter that advocated a sales boycott of Target (NYSE: TGT), for the retailer’s accommodating stance toward transgender bathrooms. I received this email in response:

“Any company will soon realize that marginalizing a group of consumers in this social media environment is a license for suicide in the long run. Accommodating all forms of sexuality is not that different than what we now see. Many places have dedicated family bathrooms. Any creative marketing department can surely solve this non-issue.” — Walter G.

Crystal blue profits…

“I am interested in investing in water purification, production, storage, and distribution. Kindly provide investment opportunities in companies that convert sea water to drinking water.” — Liju C.

The demand for clean, drinkable water is a major investment theme that I covered in detail in my April 11 issue (More Precious Than Gold: Why You Should Invest in Water Now).

My favorite water play is First Trust ISE Water ETF (NYSE: FIW). This exchange-traded fund is poised for multi-year growth, with no discernible headwinds along the way. First Trust ISE Water tracks the ISE Water Index, a benchmark of companies that generate a major portion of their revenues from the potable and wastewater industries.

With holdings of 34 water-themed stocks, FIW boasts an asset base of $225 million. Industrial companies with healthy balance sheets make up about three-fourths of the fund, with stable water utilities accounting for most of the rest.

Teaching kids about moolah…

I received this letter about my May 10 article That Awkward Talk With Your Kids (About Money, Not Sex):

“I read your article regarding talking to your kids about money and I could not agree more with your advice. I wanted you to know that I created a fun card game that addresses basic financial terms and opens the discussion about finances when used in a family setting.

I designed the game to be branded for use by financial institutions and others that are interested in the financial literacy of our youngsters.” — Sheldron S.

Good luck in your endeavors, Sheldron.

I also got this letter: “I enjoyed your latest issue [on kids and finance]. Solid advice! I need to have that talk with my kids. Keep up the good work; I really enjoy reading your newsletter. You consistently give me a lot of quality investment ideas. Thanks!” — Alan G.

Got any questions or comments? I’d love to hear from you: mailbag@investingdaily.com — John Persinos.

Jim Fink’s moment of truth…

Jim Fink, chief investment strategist of Velocity Trader, told me about a personal revelation that forever changed his financial future:

“About 30 years ago I was walking in downtown Chicago, and I came across several of the pit traders who work at the Chicago exchange. Back then they used a technique on the trading floor leveraging a certain type of investment contract.

I met these guys and learned the secrets behind how these contracts worked. As it happens, I ended up becoming one of the first investors to use this technique on an online trading platform.

I’ve been using it ever since, and I’ve built a fortune by sticking with it week after week, year after year.”

Jim calls his investment methodology the Velocity Profit Multiplier system. As he explains:

“After years of study and experimentation, I’ve discovered that every single stock sends out hidden signals before it moves, and my system tracks these signals to find profitable trade opportunities.”

Editors Note: Jim Fink recently recorded a short presentation that explains the secrets behind his investing technique. This presentation is must-see viewing for any serious investor. Click here to watch it now.