I always chuckle when an analyst concludes a research report with a precise valuation of a particular stock. Evaluating stocks is more of an art than a science. Even the best mathematical models fail to account for all the factors that drive share prices. A complex valuation model might tell you that a particular stock is worth $23 per share, but the market price may deviate from this “fair value” for an extended period. As economist John Maynard Keynes famously quipped, “The market can stay irrational a lot longer than you can remain solvent.”

No stock is a buy at any price, particularly when volatility remains a constant threat to the stock market. Subscribers often ask if I plan to raise the buy targets for the Portfolio’s oil and gas trusts, master limited partnerships (MLP) and other names that have rallied substantially in recent weeks. Although the current low-yield environment has prompted income-seeking investors to flood into these dividend-paying securities, many of our favorites have appreciated to levels where a bout of profit-taking is inevitable.

Investors worried about missing out on further price appreciation should remember the experience of the past two years, when the stock market rallied in the early part of the year but swooned during the summer. With a contentious US presidential election on the horizon and developed economies continuing to post anemic growth, the likelihood that the stock market will pull back increases in the back half of the year. Maintain your discipline and adhere to our buy targets. Investors who keep some powder dry and buy high-quality names during pullbacks will outperform the herd.

In this issue, I’ll explain how I generate the buy targets for the trusts and MLPs in the model Portfolios and reiterate the importance of not chasing these stocks above these levels. My colleague Peter Staas also reviews Peabody Energy Corp (NYSE: BTU) and Macmahon Holdings’ (ASX: MAH, OTC: MCHHF) recent financial results and updates our investment thesis and outlook for these names. These exercises prompted us to revise our buy targets on a number of Portfolio holdings.

In This Issue

The Stories

1. Elliott explains the valuation methods and the qualitative factors that underpin the buy targets on the Portfolio’s oil and gas trusts. See Trust Exercise.

2. Many of our favorite master limited partnerships trade above our buy targets after the recent rally. Here’s an explanation of our valuation methods. See MLPs: A Question of Values.

3. Shares of coal producers have suffered inordinately despite the recent rally in the stock market. Here’s our take on recent quarterly earnings from our top coal-levered picks and our updated outlook on these names’ near- and long-term growth prospects. See Earnings Review: Coal in a Two-Speed Global Economy.

4. Here’s a quick rundown on the latest news and developments affecting my Best Buys list. See Elliott’s Best Buys.

The Stocks

SandRidge Mississippian Trust I (NYSE: SDT)–Take Profits and Hold in Growth Portfolio
Chesapeake Granite Wash Trust (NYSE: CHKR)–Buy < 25 in Growth Portfolio
SandRidge Permian Trust (NYSE: PER)–Buy < 26 in Growth Portfolio
SandRidge Mississippian Trust (NYSE: SDT)–Buy < 26 after IPO
Kinder Morgan Energy Partners LP (NYSE: KMP)–Buy < 80 in Conservative Portfolio
Mid-Con Energy Partners LP (NSDQ: MCEP)–Buy < 25 in Growth Portfolio
Peabody Energy Corp (NYSE: BTU)–Buy < 45 in Growth Portfolio
Macmahon Holdings (ASX: MAH)–Buy < AUD0.85 in Aggressive Portfolio
Penn Virginia Resource Partners LP (NYSE: PVR)–Buy < 29 in Conservative Portfolio
Weatherford International (NYSE: WFT)–Buy < 20 in Growth Portfolio
Schlumberger (NYSE: SLB)–Buy < 100 in Growth Portfolio
Core Laboratories (NYSE: CLB)–Buy < 105 in Growth Portfolio
GeoResources (NSDQ: GEOI)–Buy < 35 in Aggressive Portfolio