Gambler, I added some to my Feb $55 options last week and am close to closing out my short Feb $65 options. They said they would announce the "tax plan" by the earnings announcement which is next week. This stock could easily start to run up heading into the announcement next week. My thinking is that if they don't have a good tax plan (or worse, not announce it by the time they said they would) the raiders are going to come out of the woods to start a proxy context. The hedge funds could care less about whatever the future business of yhoo is. They see easy dollars in the tax savings/split up plan (especially if they are levered up with options or margin) and could easily sell the stub business to someone else.
I chose to play with options because I wanted to limit my downside exposure but get the same amount of gain from a positive announcement. if the stock goes to $65 (like many value it), I make $10 per option. If it doesn't break $55, I lose about $2 (netting out the gain from being short the $65 calls). For me, whenever you are trying to play a stock based on a specific event, like a merger, it's best to use options.
If I had a long term gain in a stock and but was hoping for another push up based on an event, I would sell the stock and buy calls. I think the Feb $55 are around $1.
BTW, I picked Feb expiration because the Jan expiration is too close to the announcement and I wanted to leave time for the raiders to react if they don't like it and want to announce a proxy contest. I put the position on back in Nov because I thought the stock could melt up as it started to anticipate the announcement, but I also realized it could go sideways and the options would decay (howqever that helps the short position). The same thing happened last quarter, except I didn't add to the long calls when they got sold down.
Hope this goes well otherwise I'll be back to closed end munis and not much else.
Good luck, but there were plenty of "days like this" in the last few months since this bloodbath started in October and none of those marked a bottom. It's not just Goldman's prediction. Last week Merrill said oil was going to $35 (and that was met with the typical response of they were wrong earlier). Jefferies said no distribution growth in 2015 and then Barron's said $20. No one knows where the fundamentals lie when there is a big unwinding of a very leveraged bet in a sector, but we can look at the technicals. To me, it looks like MWE broke long-term support at $56 (probably accounted for the large drop as many stop losses were taken out). But that support is broken and there does not appear to be any major support until lower. Watch the $45 level on PAA.
Maybe the yields on the MLPs as a group are going back to the 8% range (the upstreams get there by cuts and the midstreams get there by price declines)
John Friedrikson, the CEO and major holder of several shipping and energy related companies like SDRL, SFL, FRO, GLNG and GMLP, uses this structure to take advantage of different arbitrage, similar to how some energy companies created MLPs to help finance different energy projects. The main idea is that the parent (SDRL) can sell an asset to the partnership entity (SDLP) and the partnership/sub entity funds the purchase price with a mix of debt and equity. The distribution rate on the equity at the partnership/sub can be greater due to taxes considerations and investors may be willing to pay up for that yield whereas if the parent were to sell the asset to a third party, the price of the asset may be lower. The parent continues to benefit from the sub by owning the General Partner interest in the sub and also some units in the sub. As the pship/sub buys more assets from the parent, it can grow its distribution and that growth often results in higher stock prices, which benefit the parent as a holder of a share of that equity. The parent often has debt whose agreements often limit the total amount of debt that the parent can have, so it creates the pship/sub with little or no debt. The pship/sub can then use debt (where the parent couldn't add any) to acquire more assets.
Friedrickson's companies take this to a complete different level. One of his companies may own an asset and lease it to another company in a different family of companies. Many of the companies own debt and equity in several of the other companies. You trust that the accounting for all of this is on the up and up, and there are conflict committees to insure that one company doesn't overpay for an asset to benefit the seller of the asset. But several of his companies are seeing their stocks decline because they seem to be interrelated on one level or another so that a decline in one sector (drilling rigs) will impact the earnings and dividends of another.
ammpmmxway, dividend availability is not based on GAAP earnings that are reported in their earnings statements. Although SDLP is not an MLP, it shares the same principal that the dividends are determined by cashflow. That being said, cashflow can still be effected if contracts for rigs are not renewed. Unlike most MLPs, SDLP does not hedge their cashflow (I'm not aware of a traded hedge contract on rigs). Further, dividends can also be effected by debt limits in their debt agreements. Normally the stated metric is based on some EBITDA to debt ratio (notice they don't use "GAAP earnings in the metric).
SDRL cut their dividend because they ran into their debt limits so they cut the dividend to pay down debt.
BTW, there are other sectors in which the dividends can be greater than the GAAP earnings. REITS are one because the dividends are determined by taxable earnings which is determined by the tax code, which is different than earnings determined under GAAP.
You may end up being right that SDLP stock continues down because of weakness in energy and they could run up into their debt limits,
Did you make any money doing the pair trade? Seems like TRGP is now dragging ATLS down. Some posters commented on other boards that TRGP's guidance was based on overly optimistic commodity prices that are already significantly higher than present prices. So we have TRGP sinking on its own, plus the wild card of whether ARP eventually cuts their distribution which would effect the spinco payout. Granted even if the spinco cut the distribution to 50 cents, it would still represent a great yield, but only if they actually pay the 50 cents.
Buy, while I agree with some of your points, the market does not care. As long as oil and nat gas remain under pressure, the market is selling the e&p stocks and now the midstreams too. All of the ETF and ETN products are causing more selling. As for the proceeds from EVEP's latest sales, they paid down their credit line with the proceeds. While that may free up space, those borrowing limits probably get redrawn on their anniversary. I think Hauser said at the Wells conference that no one wants to buy anything yet in this environment because they don't want to be early and overpay. Similarly, the sellers are still holding out for values that are now unrealistic.
Said that the S&P earnings could be reduced by $7.
syzygysys, you may be the poster that gave me the idea. I think you bought some GDP senior unsecureds trading with a 48% YTM. I think it is still way too early. We will have more distribution cuts from MLPs and probably some impairment charges when they do the annual valuations of reserves. Then spring will bring some bank borrowing base recalculations lower. Then when the first widely known company goes bankrupt, all the high-yield bonds are going to blow out.
Stagg, it may be that the publicity is just way ahead of the development process. This is an all too common occurrence with development stage companies, whether its tech companies or drug companies. In my own investment experience, I recall two analogous situations. Back in the 90's, One company based in Ireland, which had developed and sold the EPT early pregnancy test, was developing an instant test for HIV. They had contracts with the World Health Organization to distribute the test kits to millions in Africa (paid by the WHO), but they never could turn a profit. You would think something like that would take off but it didn't. Then in the middle of the met coal commodity boom in the early 2000's when met coal was at all-time highs, there was a Western Canadian company that had mines close to the ports with millions of tons to sell to Asian companies. They just couldn't get enough of the coal mined and transported. The hype about commodities and met coal in particular had run the stock up from pennies to $10, but then the price of met coal declined and the stock price fell back to $2. Luckily for me, there was another boom in met coal prices, (many on this board and SFL came together because of the old Fording Canadian Coal board which became Teck ) and the stock was acquired by a competitor. That marked another top in the met coal boom and I sold that stock and any others with met coal exposure.
Sorry for the long story, but the point is that you always have to be careful for stocks that are pumped on the basis of the "new-new thing" even if its in the industrial or service companies, not just hi-tech and bio-tech. One of my friends is a senior exec in the medical devices industry and he said that the large medical companies like to wait until a product is fully developed and with sales before they will invest or acquire the company. He referred to the "valley of death" where development companies go to die.
I'm going to pin it on the Jefferies report that was posted last week on the i.v. board. They were negative on MWE and predicted 0 distribution growth. But oil is also plunging again.
A few things may have caused the latest selloff. On the i.v. board, someone posted a Jefferies report that was negative on MWE. They predicted zero distribution growth for 2015. I think that started the decline last Friday. Also Barron's is predicting $20 oil and that is bringing everything energy down.
Sarge, things like KMI and MMP (which I own) may be better than some of the other MLPs, but don't kid yourself, a whole lot of babies are going to get thrown out with the bathwater
david,he means the interest in the spinco, not the TRGP shares. it's just the same effect as having a reverse split. The new units in the GP won't meet the exchange listing standards if they are below $5 so they will need to adjust. You will get the same percentage ownership interest of the whole
This week's Barrons has some good topics for discussion. First, is a call for oil to go to $20 and for the bounce not to be that great. Second, there's an article on market history that suggests that the chances for positive stock returns over the next 5 years are good.
I don't know of any person or firm that got the call in oil right, so does that mean they can't be right the next time? Yea, it may not be much better than a guess, or maybe they are talking their book, but almost no one is calling a bottom here.The prior poster said "oil is rising" and then it turned and went south again on Friday.
stagg, it has been a wall of pain. Last year turned out to be more difficult than the year before, even though many of us had portfolio highs by August. This year could be even more volatile. Making profits and, more importantly, keeping them will be tough.
SC4, good to hear from you. On PAGP, I saw that Wells liked it and PAA, but I had a loss that tipped the scale toward selling, plus I didn't like the way it was reacting. I think even the best of the bunch will decline, just not as much as the worst. I have loved the GP's because of their leverage to the underlying MLPs, but leverage works in both ways. I still own WGP and it has been holding up, but it is on a very short leash.
Thanks for the insight into the Russians and the banks. The European banks are in trouble already, so I think you could be right that Europe ditches the sanctions to save their banks. Maybe that's a sign to watch for when the first European bank goes bust because of bad energy loans.
Someone on another board mentioned buying distressed energy bonds. Maybe still too early, but maybe a combo long bond/short equity position.
Vin, I think it depends. There are some winners in the consumer and transport and anything that uses energy to make stuff. You named some of the losers, but what about all of the investors who are going to get their dividends cut not to mention the "reverse wealth effect" of seeing declines in their brokerage accounts. I think energy makes up 12% of the S&P. I think the difference is the leverage. Maybe this analogy doesn't fit, but when house prices collapsed in 2008, the lower home prices didn't resuscitate the economy because that was followed by bank losses which led to lower lending and job cuts. I am going to try to play some of the sectors that will benefit from lower energy prices, but I am going to keep an eye on the drag oil will have on the rest of the economy. The media will be sure to tell everyone how great it is that gas prices are helping the economy and miss when that rally runs out of gas (pun intended).
Bob, I can understand that reasoning. Perhaps buy some puts for a little protection. I forgot to think of that myself and was just too anxious to get away from this train.