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The Correction: Draghi; Chip, Telecom Warnings; Oil and MLPs

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The equity markets have been under significant pressure the past few weeks, and we think there is further downside to come. Our view is that the equity markets will be lower than today’s levels within the next 6-18 months, if not tomorrow or next week or next month. We’ve taken profits on cyclicals, and we’ve already closed out the put option hedges in both portfolios for a substantial gain (the latest transaction alert email can be accessed here). Europe appears to be in a giant mess again. The region hadn’t been strong by any stretch of the imagination, but we recently picked up material weakness during Ford’s (F) recent analyst day, which in part prompted us to take a very … Read more

Energy Transfer Partners’ Solid Distribution Coverage Ratio

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By Brian Nelson, CFA We understand that to many dividend growth investors the dividend/distribution isn’t everything–it is the only thing. That’s why we spend a considerable amount of time assessing the health and growth potential of dividends/distributions. To us, a master limited partnership’s (MLP) distribution is inherently risky. One of my former colleagues at Morningstar, Jason Stevens, emphasized in an April 2013 research piece on the group what Valuentum has been telling investors for a while: Another implication of MLP distribution policies that is important to understand is the impact of high distribution payouts on MLPs’ capital spending. Unlike corporations, which can use retained earnings and excess cash for growth purposes, MLPs retain very little of the cash generated each … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

EXCLUSIVE ALERT: Addressing Kinder Morgan Energy Partners and the MLPs in General

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There’s one thing for sure about Valuentum: as a member, you get the truth, the whole truth, and nothing but the truth. That’s why our members love us! We’re completely independent and completely tied to your best financial interests. You know we’ve never been shy about outlining the risks related to MLPs – for one, you don’t have to look far to see this warning (source) on the front page of every one of their 16-page reports (at the bottom): Firms in the oil and gas pipeline industry own or operate thousands of miles of pipelines and terminals—assets that are nearly impossible/uneconomical to replicate. Most companies act as a toll road and receive a fee for transporting natural gas, crude … Read more

Boardwalk Pipeline Highlights Unique Risks of MLPs

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You can’t get far researching master limited partnerships (MLPs) on Valuentum’s website without encountering the following warning (source): Firms in the oil and gas pipeline industry own or operate thousands of miles of pipelines and terminals—assets that are nearly impossible/uneconomical to replicate. Most companies act as a toll road and receive a fee for transporting natural gas, crude oil and other refined products (and generally avoid commodity price risk). Though there is much to like, most constituents operate as master limited partnerships and pay out hefty distributions that can stretch their balance sheets. Additional unit issuance (dilution) has become common, and capital-market dependence is a key risk. We’re neutral on the group. We have a unique view of the business … Read more

Energy Transfer Partners’ Distribution Growth Could Return

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Wednesday afternoon, Dividend Growth Newsletter portfolio holding Energy Transfer Partners (click ticker for report: ) announced solid second quarter results marked by nice growth in distributable cash flow (DCF). Because of its many acquisitions, revenue was significantly higher than the prior-year period at $11.6 billion, in-line with consensus expectations. Earnings per share were also significantly higher year-over-year at $0.53, which is also far better than consensus estimates. Ultimately, for a yield instrument like Energy Transfer Partners, cash flow metrics are far more important than headline numbers. After the Linn Energy (click ticker for report: ) distributable cash flow debacle, ETP has improved its distributable cash flow reporting, providing investors with DCF attributable to the partners of ETP. This excludes DCF … Read more

Linn Energy: SEC Sees Smoke…Is There Fire?

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Controversial independent oil and gas company Linn Energy (click ticker for report: ) announced Tuesday morning that the SEC has launched an informal inquiry into Linn and LinnCo (LNCO). As we previously outlined June 3, we have no interest in adding the company to the portfolio of our Dividend Growth Newsletter given the cloud of questions, poor internally-generated cash flow, and numerous downside risks. We’re retaining the firm on the watch list of our Dividend Growth Newsletter, however, as we continue to monitor developments closely. As always, our best dividend growth ideas are included in our Dividend Growth portfolio. We give credit to Linn’s management team for revealing the explicit details of the inquiry, stating in the press release: “The SEC … Read more

Nelson: The 16 Most Important Steps To Understand The Stock Market

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A previous version of this article appeared on our website July 21, 2013. Refreshed and updated throughout, as of July 2018. By Brian Nelson, CFA After earning my MBA at the University of Chicago Booth School of Business and training stock and credit analysts from large organizations over the past decade or so, I have heard just about every question (though I admit I am still surprised by many things and remain a very humble student of the markets). I’ve also spent years perfecting the discounted cash flow process for large research organizations such as Morningstar and studied under one of the most famed aggressive growth investors of all time, Richard Driehaus. My knowledge runs the gamut from value through … Read more

How to Think About Corporate Tax Reform

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Valuentum’s Comprehensive Outlook for Crude Oil and Natural Gas Prices

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Let’s take a deep dive into the energy sector. The best dividend growth ideas, the most likely takeout candidates and more…