Sunday, March 17, 2013

Three to Pay the Rent...L&C

You know, dear reader, that I don't usually give stock picks and my number one choice is the yellow metal, however life being what it is, we all need to eat and use energy(which is contrary to the gov't's CPI). As stated in earlier pieces, if the choices go south, I not only suffer, but I have caused you too. This is the reason that you should always seek a professional to give you a better judgement to their value or lack of. My three picks are: CVR Refining LP(CVRR), Enbridge Energy Partners LP(EEP), and Statoil(STO).
Pro Reasons
are many and interrelated in scope. Although alternative energy choices are better than my fossil choices, the demand side continues to rise with the world population and the higher standard of living in many countries like Brazil, China, India and the commodity oil rich nations. When I say better, I only mean that in the context to the cleaner energy forms like solar or wind. My choices do contain natural gas which is cleaner for the environment than oil, but still is in the fossil fuel category. As a Sierra Club member, I push LNG and CNG to them because it is a compromise step in the right direction, however that is another story.
Looking at the production side, rig count onshore in the US has been on a downtrend since 2008. Presently, it looks like it is bottoming at 423. The producers of natural gas are cutting back to support prices, however the media doesn't pick on them like when OPEC use to do the same strategy. If you haven't notice the price for MMbtu's has risen from $1.90 to the present $3.80. In addition, Schlumberger(SLB) has a study for rig usage in offshore drilling and projects a double from the 300 count in 2010 to over 600 in 2015. This is demand. This need for oil comes from the above named countries which offsets the decline in the US and Europe.
For those of you that think that hybrids will change the need for oil think again. The cost for hybrids compared to regular gasoline cars and trucks is cost prohibitive. Keep in mind that true change takes time. The use of horses started in BC and ended only around 1900. Wooden ships run the same range. The Model T is just 100 years in this revolution of change. We will have many more years before the steps are taken to LNG and CNG, which in itself will run for at least 50 years. There are many companies looking to develop fueling stations for this transition, but investors will see many years of losses before the time arrives.
Let's take a closer look.
CVRR is a new spin off IPO this year. It is from a respected US company with steady growth. This is a high yield variable partnership. They pay out most of their income on $8b in sales with 74% sales growth. The stock has climbed too high at over $35. per share. I would wait for a pullback entry point around $30. It paid 16% in its first distribution. This is a risk takers pick for growth and yield.
Next, is EEP. This is one of Canada's strongest oil & gas companies. Currently, at $28.69, it is at the low end of its 52 week range. It has suffered from the low price of natural gas, but still pays a safe 7.58% yield with a 2.90% dividend growth rate for the last five years. Get this! Its EPS is less than one. WOW! The best entry would be at $27. This is the best-in-show due to EEPs pipeline expansion into the Bakken oil region.
My last choice is from Norway. No, not a beautiful blond, but beautiful in the sense that STO is a very safe, proven company with a strong record of success, that revolves around their safety record of engineering in offshore drilling. This is important to follow because Brazil found the largest offshore field, but lacks the know-how to develop it. I feel that Brazil will call STO or Chevron to help them, but I pick STO because they also made a big move into Bakken oil. They pay a 4.36% yield with a good entry point of $23. If there is a severe correction, I would lower that to a great buy at $17.
Con Reasons
I feel that the stock market is over-bought and a correction is coming...soon. In addition, the US dollar is rising and when it rises, the market sinks. This is why gold has been falling lately. It is responding to the strength of the dollar. It is giving you a heads up. If the recent tax increases in the US cause consumers to slow even more, oil will fall. This will give you the opportunity to buy at the suggested prices, however please put in your stops because no one knows where the market will stop or what other event could trigger a further decline.
Liars and Crooks: Again, goes to the CPI index which gave its February reading of up 0.7%. Are you kidding me?! Gas up 16%. Corn has doubled! Eggs up 70%. Coffee up 160%!!!!! We demand a change to the CPI to only have food and energy and as always end the Fed!