Things were ugly again during the trading session February 8, but you were expecting the weakness. There’s nothing surprising, and we continue to wait to scoop up undervalued gems once the tide of this market turns. Topping the news today was the abrupt replacement of the CFO of Energy Transfer Equity (ETE)/Energy Transfer Partners (ETP) coupled with the sell-off in Chesapeake Energy (CHK) on news of a probable bankruptcy, which set the tone among midstream MLPs (AMLP), the index diving aggressively.
Followers of Valuentum were far ahead of these developments, “Focus on ETE, Not ETP, Strive for Balance and Stick to the SEC Filings,””Alert: Energy Transfer Equity Is More than 7x Leveraged!,” “Energy MLPs Continue Swoon,” and our body of work on the space goes on and on. Remember, we only release a small portion of our research and analysis in the public domain, as most of it can only be found behind the paywall here. We continue to have very little interest in any energy MLP in our coverage universe at this time, and we maintain our view that the “…MLP Business Model May Be a Goner, September 28 (Barron’s)”
Those midstream MLPs most exposed to renegotiation of contracts in the event of a Chesapeake Chapter 11 filing include Williams Partners (WPZ), which is being bought by Energy Transfer Equity, and Plains All American (PAA). Chesapeake is but the largest of the once high-flying upstream energy giants to be near a filing, and the news continues to put pressure across much of the midstream space. We reiterated our cautious views on the energy MLP space, “Valuentum’s Latest Thoughts on Energy MLPs” February 3, and we encourage readers to take a long-term perspective, which could involve a “lower for longer” scenario for energy resource pricing. As was outlined in our work on ConocoPhillips (COP), “Valuentum Reiterates Risks of ConocoPhillips’ Dividend” January 25 prior to its dividend cut, very few energy-related dividends will make it to the end of this energy cycle downdraft.
All major sectors were trading lower at the time of this writing, and only the “learned” global deflation hedge of gold (GLD) was moving higher. We continue to encourage speculators in the yellow, shiny metal to read, “Gold is But a Shiny Yellow Metal,” but if traders continue to feel gold will be a safe-haven the commodity will continue to catch a bid. Frankly, we continue to like the relative outperformance of many of the stocks in the newsletter portfolios. Altria (MO), Apple (AAPL), Cracker Barrel (CBRL), Hasbro (HAS), Johnson & Johnson (JNJ), and Procter & Gamble (PG) continue to trade in the green as the market swoons.
Though we don’t like the overall market direction, we like the relative outperformance!