The Issues Issue

By Igor Greenwald • December 16, 2015 • In Brief

With so much damage done to the investments that were sold as steady income producers and still so much volatility in price and yield, it’s hard not to be distracted by the daily parade of dismal numbers.

This MLP is down so much, that one has that much debt, needs to raise this much financing before this long. Numbers can be important, and we think we’ve compiled those that matter most right now in a Sector Spotlight focusing on the current debt metrics, liquidity and funding needs for eight key midstream processors, including most of the current Best Buys.

This month’s New Buys column uses a few more figures to recount the progress made over the last month by former favorite SunEdison (NYSE: SUNE) and makes the case for buying it (slightly below current levels) along with one of its yieldco vehicles, TerraForm Power (NASDAQ: TERP).

But the other three features we’re publishing this month focus on issues rather than scorekeeping. One analyzes how the first Federal Reserve rate hike in almost a decade will affect a sector perceived to be allergic to rising interest rates, and finds reasons to root for that very outcome. Another warns against expecting the eventual recovery to restore MLPs to their former glory; scars this deep won’t heal quickly. A third explores some disturbing parallels between Rich Kinder and an earlier energy infrastructure titan, the two men linked by a Chicago pipeline and a penchant for heavily leveraged growth.

The goal is not to depress you any more than necessary but rather to provide a realistic view of the industry’s current challenges and opportunities. The numbers will eventually look better than they do now. The markdowns will eventually give way to markups. But the issues of rate sensitivity, path dependence and the tradeoffs between growth and leverage will still be with us. I hope you find these discussions useful.

 

MLP Profits Portfolio Update

  • SunEdison (NYSE: SUNE) added to Aggressive Portfolio; buy below $4.75
  • TerraForm Power (NASDAQ: TERP) added to Aggressive Portfolio; buy below $14

 

Stock Talk

Comments Guidelines
Guest

Kris Vassallo

What’s with the Debbie Downer. You’re supposed to say MLPL will be back to $70 by next week.

Igor Greenwald

Igor Greenwald

Just trying to offer some realism and perspective, that’s all. Not down on MLPs at all relative to current prices; think they’re better buy here than two years ago by a long shot,

Mr. Ed, The Talking Horse

Mr. Ed, The Talking Horse

Igor, what is your view on DHT and CPLP? Market appears think they go the way of TNK and cut divideds. Thanks.

Igor Greenwald

Igor Greenwald

They’re in an entirely different business (and TNK, which also owns tankers, was the one Teekay entity that didn’t cut, by the way). We’ve just made CPLP our top Best Buy: http://www.investingdaily.com/mlp-profits/articles/24282/parsing-kinders-money-problems/

Tom Light

Tom Light

Igor/Robert-
Really shocking to see your sister publication and that analyst with SELL ratings on ETE and ETP!!!!! Also a tough article today on SA. about ETE/ETP.
What are your feelings here regarding SELL or Hold?
Thank you,
Tom

Frank

Frank Gray

I too would like to see this question answered!

Igor Greenwald

Igor Greenwald

Definitely not sell here. Ari asked for my input before making his recommendations and he’s a super smart guy. But he mostly covers a sector (utilities) that’s typically produced much lower volatility, and has to worry about the risk appetite of his subscribers, who may have only dipped their toes into MLPs of late. I think we know all about volatility at this point here, but I’m convinced that this is a terrible time to sell.

Tom Light

Tom Light

Thank you Igor-
Your encouragement is appreciated lots more than I can possibly express-
About 1/2 of my brain knows to sit tight- the other 1/2 is saying don’t loose the whole boat-hope that some reduction of inventory will be coming soon- with better prices-
just really hoping – no big dividend cuts-
Thank you for the prompt reply!
Tom

Tom Light

Tom Light

Thank you for your reply-Being very overweighed in MLP’s and watching the values dropping like they are is simply tough to take-Unless the oil market stabilizes and turns up- there is no way to ever recoup the huge losses- doesn’t matter if it would take years-if they can just remain solvent and paying dividends that is the bottom line and biggest question -probably most of us have–the credit markets seem to have really tightened for the oil industry-Saudi starting to try to sell equity in their State Oil Biz??-starting to wonder if we can stay in here long enough to see a recovery-Wish our Gov. would simply impose a tax on imported oil-and forward that money to the
USA oil industry-instant oil recovery-and we could be self sufficient not dependent on foreign oil.
Appreciate your comments and thoughts very much.
Tom

Igor Greenwald

Igor Greenwald

It doesn’t seem like the energy credit markets have tightened all that much considering Oneok Partners borrowed for 3 years at very low cost yesterday, and hard to see how any midstream giants will go insolvent when Pioneer can sell more than $1 billion of equity to increase its crude output by a targeted 16% this year. Not that the sellers seem to care about any of this right now. But these stocks aren’t going to zero.

Tom Light

Tom Light

Igor-
Are You /Robert still comfortable with ETP/ETE/WMB-credit ratings not helping our stomach
any insight or comments on the whole sector from you will be very appreciated.
Thank you,
Tom

Igor Greenwald

Igor Greenwald

I’m very comfortable that the midstream equity prices here reflect abject fear unsupported by the facts or the recent comments from Moody’s, etc.

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