I agree that this is a good move. With the "bad" news out and the new year started, the shorts who have been killing these stocks, may book their profits and start to cover. Will be interesting to see if the other MLPs start to rise in anticipation that they will follow LINE and BBEP with distribution cuts, and the shorts covering before the "good" news comes. I think now that they have seen the market reaction (up), they would be crazy not to cut. And there will also be similar deals like the one with Blackstone. Good for now, but oil still has to stabilize.
syzy, Part of many of my posts is that I have made many mistakes in my investing history, and one of those mistakes was chasing the high yields of the shipping industry back a few years when commodities were hot. Maybe a lesson that all of us keep repeating in some form or another. The point is that no matter what the sector is, mREITs, BDCs, MLPs or boats, the sector can get hot for a period and you can make money if you get in and get out, and not become so enamored with particular stocks that you think they are bullet proof. I first heard of SFL and SDRL from some of the posters on other boards who identified them as rarely talked about high yield stocks that seemed immune to bear markets and who always managed to pay a high dividend. The history is that over the years both saw significant price declines and dividend cuts or eliminations, but that doesn't mean one can't own them and trade them. As for the trading, I am not a day trader, but have come to "sit closer to the exit door" knowing one of the key mistakes is to fall in love with a stock and see profits evaporate slowly, drip by drip. Opportunities are made up faster than losses (or lost profits).
Sarge, I'm still avoiding SDLP. Man am I lucky that I bailed when I did. Sometimes your best loss is your first loss. I'm trying to resist the urge to go knife-catching in energy. May have to switch focus and look to some other sector in low yield land. How about consumer staples?
Stagg, as you know, many of the high yield energy names have already plunged a great deal. Tax loss season is finally ending so some of these names could get an early bounce, however, it may be too early to say that oil has stabilized. What you call "low yield" stocks, like the midstreams, may not be affected as much. For example, WGP and MMP have held up very well. I don't really follow the boats like NAO, but its chart looks bad, just like many of the energy names. I think you could be right about transportation stocks, however, many things like the train stocks were getting a lot of revenues from shipping fracking sand and oil, and will the slowdown in those areas outweigh the benefit from lower fuel costs?
The main point is that when we get a sudden dislocation event like what happened with oil, the shockwaves can impact areas that are seemingly unrelated, like other high yield areas. In the mid 1980's, a sudden decline in oil prices led to a banking crisis in the southwest and precipitated a recession and the savings and loan crisis. Who knows what happens next?
Sarge, this is Wells top quartile: GBDC, HTGC, TSLX, TCAP, ARCC and TCPC. Stocks in the next quartile which they also rate outperform are: FSIC and TPVG.
I don't follow any of these. Good luck and let us know what you find out.
rrb, the market is deservedly not giving EVEP management any credit for their deal-making ability. They don't care about UEO or Cardinal because they botched the Utica sale which they spent over 2 years on. They couldn't even deploy the proceeds of UEO or the Eagle Ford and as a result, unitholders are going to pay tax on those gains. They also don't care about Walker's buys since he was the one who predicted the Utica sale, which he botched, so why should his stock buying ability be any better. Also, they mentioned at the Wells conference that they were looking to sell their Mancos play and more in the Eagle Ford, but now that seems a little too late to get maximum value.
Probably much closer to a bottom than a top, but there is no, nothing, zero, zilch, zamboni, nada, no potatoes, confidence in EVEP management. They lucked into the Utica and still couldn't turn it into any value.
pale, a note about NYMT. I have offered somewhat "negative" comments on it, despite the good performance that it has had. The point to me is that investors seem to think that NYMT's outperformance is immune to change, while at the same time, ignoring how the company achieved that outperformance by investing on a highly leverage basis in an asset class (multifamily housing) that outperformed. The rationale seems to be either that multifamily will never cool off no matter what or that management will successfully switch to the next undervalued asset class by getting out of multifamily at the top, before any reversion to the mean can impact their performance. When consideration of those risks fails, then the fall back argument always seems to be something like "but I am getting paid 13%." But then we look at all the different high yield sectors which suffered great principal losses while still paying their dividends.
Pale, another point from the Wells report is that they compare the BDCs versus the Russell 2000 on a relative value basis and believe that the BDCs may now outperform because they have underperformed lately by some 3 standard deviations. To me, this is yet another version of the sector rotation game that seems to involve many of the dividend stocks that many of us follow. So the next time some equity-income sector, be it BDCs, mREITs, or MLPs starts to outperform (and posters start posting about such outperformance), it may be a sign that things are going to change and that favored sector is about to start underperforming as money rotates away. We tend to think of high yield dividend plays as "buy and hold" stocks because no one wants to sell a stock with a big dividend when it also appreciates (or pay the taxes on gains and then have to find a replacement for that lost income), but history shows that they come in and out of favor based on their relatvie performance. In other words, buy low and sell high. We spend too much time on these boards talking about stocks to buy and less time talking about when to sell.
Wells has 2 pieces out on the BDC space in which they look at each BDCs energy exposure. They note that the energy exposure is mainly through CLO's (collateralized loan obligations) and that the BDCs will be writing down their NAVs when they report Q4. Wells goes through the math on each BDC to see which ones have the greatest exposure. I was surprised to see two of Helmut#$%$, HTGC and HRZN, on their list of large energy exposures, but those performed well in the past and now it is clear where their outperformance may have come from. Wells mentions that those BDCs that don't take writedowns will be suspicious and investors will likely leave those names. Still, Wells thinks the BDC space has already reflected these writedowns and represents good value compared to the other major indices.
Wells divides the BDC space into groups and notes that their top quartile beat the bottom quartile by 300 basis points. Note that PSEC is in their bottom quartile.
mizzou, I have owned the entire ATLS complex (ATLS/ARP/APL) for several years and also TRGP. I just want to point out the tendency of the Cohens to overpromise and underdeliver. I have a good gain on APL, but they also promised greater distribution growth and then overpaid for assets. They also spun out ARP out of ATLS and while the distribution has increased, the share price is down from the mid $20's. They also overprojected the ARP dividend growth for this year and missed it, which hurt the stock price of ATLS. When the TRGP merger was announced, they projected the distribution for spinco to be $1.25, but later revised it down to $1.10, probably due to the decline in oil prices. Still, at an implied price of $1-3, the spinco is too cheap, but I would not give much credence to their share projection of $13 -20.
Part 2. Other "good" losses included my sale of PSEC. I initially bought PSEC even though Wells Fargo did not rank it as their best BDC pick. I think the lesson there is that it is better to buy the best in the sector instead of the stock that has the highest yield. Maybe BDCs just aren't for me.
I had several good option trades during the year. I bought BABA calls before they announced their earnings. I bought YHOO calls before the BABA IPO. I bought puts on several of the royalty trusts (CHKR, SDT and SDR) before their ex-div dates when the stocks showed a pattern of plummeting after the ex dates. On the bad option side, I was selling covered calls on EPD, which went on a tear and rose from 31 to 41, which forced me to kee moving the calls out, but then I got inpatient and repurchased the calls, right before energy prices declined.
I sold GPT with about a 25% gain since March '13. Unfortunately, I was expecting much more and got inpatient and sold it before they announced a big acquisition. Under the category of terrible holds, I put NADL. I must have suffered from "deer in the headlights" syndrome when this started plunging. Initially, I bought NADL when its RSI dropped to 11, but as we have seen, a stock can resume its decline after getting oversold. Maybe if I held NADL in a taxable account, I would have taken the loss. Some other good holds are TRGP (bought last year at $76, now 107). I still have some WGP, bought at $36 late last year, but sold some at $60. I own ETE with a cost basis of $17. I sold some APL at $36 (now $26, basis of around 14) and bought MMP at 68 (now 85). I still have some WMC but traded in and out of it. I still have some muni closed end funds which are still trading at discounts of 10% while yielding 6%+ tax free.
Happy New Year to all including my good friend Stagg.
I don't normally provide a review of my portfolio, but thought it could be instructive for many of the errors that I made this year, as well as some good trades that worked out. Over the last few years, I have invested in many MLPs and because of that my portfolio was overexposed to energy names. My rationale was based on a combination of factors including an economic recovery keeping demand up, easy money keeping money chasing commodities, especially oil, war keeping a premium on oil and the development of our shale fields providing a supply of nat gas and liquids for use in ethylene and for export. Like many, I did not see the chance that the US would try to punish Russia by crushing the price of oil with the help of the Saudis.
In retrospect, there were several lessons to be learned. First, I'm too concentrated in energy MLPs. For me, MLPs provided good yields and share price appreciation, backed by real strong growth. However, as with most asset classes, when there's a good thing, Wall Street makes sure to overexpose the sector with numerous IPOs. There's no need to own every MLP or every of any sector (like mREITS or BDCs etc) just the best ones. There's always the risk of buying newer, smaller MLPs with greater growth prospects versus owning the best, longer term performers. Now to the trades.
In the category of "good losses," I sold positions in SDLP, HCLP and LNCO, once the decline in oil started. I took losses to offset gains, but the losses could have been much greater if I held on longer. Unfortunately, I did not sell all of my e&p companies and still own ARP and EVEP and small positions in VNR and BBEP. They are all still paying their distributions and are hedged, but one must keep an eye on their debt covenants. I did add some shares of ARP during October when it first got clobbered, but have not added to the others and am waiting to see how oil prices shake out. More to follow.
Kee, just today I looked up the crack spreads to see whether they were expanding. If you google "crack spreads" there is a weekly research from some brokerage firm that set forth a lot of info on gasoline supply and demand and all the different regional crack spreads. Looks like they are still down from past years and the Q4 is not trending up yet. But something to think about.
Stagg, unfortunately, you don't know much about TRGP so let me provide some "color." TRGP is the gp of NGLS, a fast growing MLP that is in the gathering and processing space. TRGP came public just a couple of years ago at $26 and has raised its dividend by a large amount over the few years it has been public. It is levered to the growth of NGLS (which I owned earlier and was called out after doubling my money). I bought TRGP because I could see that the market was paying up for the greater distribution growth at the gp level. Earlier in the year, ETE offered to buy TRGP for about $160, so the stock price spiked on the rumor of the offer, but then sold off when no deal was consummated. Goldman and Leon Cooperman have higher targets for TRGP. Then TRGP and NGLS announced a deal to acquire APL and part of ATLS. There may be some merger arbitrage that is shorting TRGP and buying ATLS which kept TRGP down. We will see how TRGP fares in 2015 once the tax loss selling is over and the merger with ATLS is completed. There is risk that the decline in energy prices will effect g&p companies like TRGP, but ETE and Kinder may still be interested in buying it, and the opportunity to export ngls may still exist. The key to the share price will be the continued distribution growth, because despite what you think is a "low yield", the market pays up for dividend growth, not high yield. But like any stock, you have to stay vigilant and not fall in love with it or try to defend it with silly statements about low yield and high p/e ratios when those were not factors in its rise.
He is just doing the math. The merger exchange price is 0.1809 shares of TRGP + $9.12 cash for every share of ATLS. A couple times over the last 2 weeks the value of the merger consideration was within a dollar or two of the price that ATLS was trading at, meaning that the remaining spinco or stub business (that TRGP was not acquiring) was valued at $1-2, even though they projected that they would pay over $1 in annual distributions.
Stagg, for the record, TRGP is up 20 points from Jan 1 or 23% not including dividends. As for dividends, TRGP has raised their dividend some 33% this year and is currently yielding 3.3%, which is more than the S&P average and is more than the current yield on SDRL which is now 0%. As I have tried to educate you, p/e ratios are not always a good metric for some stocks. SDRL has a much lower p/e ratio, but that did not stop SDRL from eliminating their dividend and declining some 75% from their high. As for "color", no one seems to know what you mean by that. You once said that SDRL had good color, but again, no one knew what you were talking about. Is this just Stagg speak? TRGP's earnings growth is up 88% yoy according to Yahoo.
No doubt, TRGP has taken a tumble along with many MLPs in the energy sector, but let's see how 2015 turns out. TRGP is scheduled to acquire the midstream part of ATLS so the merger arbitrage may be weighing down the stock, but TRGP will be in a position to export ethane and other NGLs.
This is where I don't understand you, because you just posted a comment on NGLS pipelines and yet you don't seem to know that TRGP is at the end of that pipeline along with EPD to gather those liquids.
TRGP is a winner. ETE tried to buy them for $160 per share. Who said you can't make money in oil and gas -- oh, that was Stagg!
In essence, ATLS is breaking into 2 pieces: the midstream part which is associated with their holdings in APL which is being acquired by TRGP, and the other part, which is being renamed Atlas Energy Group. Atlas Energy Group is the spinco because it is being spun out of ATLS in a tax-free spinout just prior to the merger. They probably have to do it this way for tax considerations so that TRGP can acquire the midstream related part of ATLS.
So doing the math you get 0.1809 times the price of TRGP + $9.12. Compare that to the current price of ATLS to see what the spinco part is being valued at.
The strategy is an arbitrage to capture the value of the spinco entity. Although Cooperman mentioned that he also liked TRGP, so he might not be shorting TRGP (but merger arbs may be).
If one buys ATLS and shorts the appropriate amount of TRGP shares, then at the merger closing, one can deliver the TRGP shares received in the merger in exchange for the ATLS shares to close out the short position. You would get the $9.12 in cash per ATLS share plus the spinco share.
The taxes could be complicated because you might have a gain on the short-sale position (if the price of TRGP dropped from the time you put the short on) and a gain from getting $9.12 plus the value of the spinco, depending on the price you paid for ATLS plus what the spinco is valued at when the deal closes.
The merger consideration is 0.1809 shares of TRGP + $9.12 cash.
Why are you buying more NGLS if your shares of APL are being exchanged for 0.5846 shares of NGLS plus $1.26 cash?
I have been tracking the implied value of the spinco for several weeks and posting about it. At one point, the value was less than $1, then Cooperman made an appearance on CNBC and mentioned he was buying ATLS to get the spinco.