The tanking has officially begun! Brent down close to $70. WTI off almost 5%. OPEC drawing a line in the sand. Friday will be blood red Friday for the producer space.
Not sure I can say that I *like* any upstream MLP given all this. I think MEMP very possibly could be the best turnaround play if one can wait 3 or 4 years, raking in the 14%+ yield and waiting for a comeback in the unit price. In the short term though, MEMP might just get sucked down into the abyss with all the rest and see the unit price go down to $12, $11, $10...who knows how far down. It could be scary and will take a lot of trust in management to execute and that oil will recover by 2017/2018.
The majority of my MLP money is invested in 'safer' names like MMP, EPD, PAA. My two high growth names are TEP and SHLX. I owned PSXP but sold it to take profit. It should still see high growth though moving forward.
My one big concern with these midstream plays is if oil gets so depressed that a lot of shale producers get insolvent, we might see some defaults take place on contracts that these pipeline MLPs have in place to transport all this oil. That would be a worst case scenario if all this so called guaranteed money that was agreed to in advance all of a sudden becomes not so guaranteed if these producer companies get their necks in a noose. A tollbooth operator is only profitable if people can actually pay the agreed upon toll. Depending on how things go in 2015, I might sell out of these midstream MLPs if I feel the danger is rising. I think that will be unlikely though to that extent.
alba, you make some good points, but there will be a lot of good paying jobs lost as well in the energy field as this plays out. Don't underestimate how important this energy renaissance has been to what little economic recovery the USA has seen since 2008. If that gets blown up, I am not nearly as sanguine as you as to the overall benefit.
History has shown that if the energy space busts big time, the repercussions can be quite severe. One area of big concern is high yield junk bonds. I would advise everyone to be careful as this space is going to get roiled soon enough. Once junk bonds get taken to the cleaners, that usually causes an equity market correction as well. It is kind of like a set of dominoes falling. It would not surprise me one bit to see this as a catalyst for an entire market correction that is long overdue.
I'm buying select names during the entire drop down, but it is wise to keep liquid to continue to take advantage of more and more bargains. Oil could bottom at $60 or $30, who knows. When it turns back up though, the most beaten down names will be rising up 10-15% or more faster than one can hit the buy button. It's likely that I will not nail the low, but just nibbling a bit here and there and slowly accumulate I think is a decent way to go since I'm not a trader.
Not exactly news, as most everybody assumed OPEC would hold firm. Still, oil is getting thrashed this Thanksgiving, so one should expect Friday to be bloody and volatile. I recommend those who would like to accumulate for AWLCF set up some limit orders to take advantage of any crazy spike down in price. I imagine the volatility will continue for the next 12 months, so likely plenty of other opportunities to buy low will present themselves.
Happy Thanksgiving to the longs.
Anybody who bothered to do research on Awilco would know that a dividend cut is likely coming. The question is how much. Bobdbus has done a service to the board by offering a nice work sheet to see (and play around with) the numbers for oneself. It is not rocket science. It is math.
Jim, you summed up things as well as anybody could. Friday will indeed be ugly for many names. I'm double checking all of the stink bids I have set up for the few names I'm buying. As you say, MEMP should be okay as long as management delivers as promised. I am putting my trust (and a lot of money) in their competency. Good luck to all.
You're welcome, my contribution to the NRZ board ha ha. I like how NRZ is finally getting a bit of traction after wallowing so long in the $6 (pre-split) range.
You're very welcome. Just one of the tricks I discovered after spending so much time online trying to give myself a financial education.
I'd be surprised if Seadrill goes under. There are plenty of weaker competitors who will be folding first. The writing was on the wall for a steep cut in the dividend. Completely eliminating it was a surprise, but I think that was the best (long term) move they could make right now. Best to focus all of their (impressive) cash flow on handling the debt and increasing financial liquidity until oil recovers. They are a cash flow machine through 2016 based on current locked in contracts. By being pro-active now, Seadrill made a bold move to emerge from the other side as one of the winners.
I'm not in any hurry to buy though, as there will still be plenty of opportunities due to both margin call selling and tax loss selling. Plus, if oil really tanks next year it will be the fire sale to end all fire sales. Best to have lots of cash ready.
You make a bunch of valid points about the near term future in this thread. One small correction though if I may. Majority of MLPs have actually had a very *good* year price wise. It is only the upstream MLPs that have taken it on the chin and could see some significant tax loss selling through Christmas.
For me, probably around early December I will put some tight stop limits on my generic ETF positions like VTI, because I think retail is going to disappoint. As you note, as 4th quarter and 1st quarter results filter in, bad retail news will become more apparent. Large companies will continue to fund huge share buybacks either with available cash or with cheap debt to massage some earnings numbers and make things look better than they are. Look at Wallmart for a good example. They totally swamped their last earnings numbers through a huge buyback. Near term gains but long term pain.
I bought a bit more today at $15.05, but I'm trying to conserve my money in my tax account just in case things really get crazy over the next 12 months. I also bought a bit more AWLCF today, down a ton thanks to the Seadrill news.
ARP has been acting incredibly strong lately (of course just after I sell to buy MEMP LOL) amidst all this carnage in the sector. Only down $0.13 today? ARP is around 17% above it's recent 52-week low while most all of the other upstreams are making new 52-week lows today. Of course, one can argue that ARP was down way too much earlier in unit price compared to its peers.
"Because the market has already punished them as if the cut is coming, so it only makes sense to do so. A 35% dividend is absurd!"
I can assure you that no competent management lets wall st. dictate their dividend policy. I've seen this fallacious logic used many times, and it never ceases to amaze why someone would think this way. Awilco will use common sense metrics of costs versus revenue to determine an appropriate dividend moving forward, but the stock market price is NOT one of the inputs! Financial math 101.
Did not get $12 (good job), but I snagged more around $12.5. I set up a few more stink bids between $10-11 as well just in case the party is just getting started.
I should have mentioned I did in fact buy more MEMP here right around $15. I do have limit orders set up all the way down to $12 though just in case.