Answering Reader Questions

Q: Please share with us your reasons for removing NuStar (NYSE: NS) from the portfolio. Does this change reflect a problem within NS or does it just mean that NS is not the style of company that you want for the new TES portfolios?

RR: NuStar didn’t raise any red flags, we just felt that it wasn’t as diversified or as stable as some of the other MLPs in the portfolios. Given the changing operational profile, we felt the yield wasn’t worth the extra risk, and we wanted to focus on other, more promising opportunities.

Q: Would you comment briefly on Eagle Rock Energy Partners (NasdaqGS: EROC), a Best Buy in the Growth portfolio.

RR: EROC was hurt last year by weak gas and NGL prices, resulting in disappointing distributions in recent quarters. In the most recent quarterly earning statement, the trust reported higher than expected revenues, but also a higher than expected loss as a result of commodity hedges. Nevertheless, we still feel that Eagle Rock is an attractive MLP with solid oil and midstream gas assets and we maintain our recommendation to buy EROC up to $12. It is no longer a Best Buy, however.

Q: I’m concerned that the price of oil has too much influence in the price of MLPs as well as E&P companies, especially since the oil price has been going up for at least two months without retreating.  I feel it is time to pare back.  Can you list specific stocks that are very sensitive to oil price?

RR: The stocks that are most sensitive to oil prices are companies that aren’t integrated and whose production is weighted toward oil. Companies to watch if you are concerned about a possible drop in oil prices include Aggressive Portfolio holdings Continental Resources (NYSE:CLR), Afren (LSE: AFR) and Oasis Petroleum  (NYSE:OAS); along with Growth Portfolio holdings EOG Resources (NYSE: EOG) and Mid-Con Energy Partners (NasdaqGS: MCEP). Linn Energy (NasdaqGS: LINE) derives nearly half of its production from natural gas, so it would be more protected from a steep drop in oil prices. The integrated oil companies would still be hurt by a drop in oil prices, of course, but to a lesser extent because of their diversification. And refiners could actually see profits increase as oil prices decline.

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