RDS

MLP Speak: A Critique of Distributable Cash Flow

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–> Handout 1: Pitfalls of Distribution Yield Analysis (pdf) –> Handout 2: Linking P/DCF to Enterprise Free Cash Flow Valuation (pdf) Let’s talk about a controversial metric that is used in master limited partnership (MLP) reporting. Just how useful is it, and should it be allowed? By Brian Nelson, CFA It’s been a few years since the fallout in the prices of most master limited partnerships (AMLP), but to me, it still feels like yesterday. We continue to have many concerns about the longevity of the business models of MLPs, and we maintain our view that the operating structure will be challenged over the long haul. New equity and debt funding (issuance) continues to, in part, fuel the distributions of most MLPs, … Read more

Valuentum’s 3 Breakthroughs in the Field of Finance and More

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Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more

This Oil Stock Is Surging!

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The Valuentum analyst team digs into recent developments in the oil and gas space and highlights one of the most leveraged ways to play rising crude oil prices. ~12 mins. If you cannot view the podcast below, please select the link here or view the transcript that follows. Tickerized for Valuentum’s oil and gas coverage universe. Chris Araos: Hello, this is Christopher Araos at Valuentum Securities, and today with us is Brian Nelson and Kris Rosemann. Today, we are going to talk about the outlook on oil and gas. Brian Nelson, CFA: Thanks Mr. Araos. I think to kind of set the stage for this conversation, we probably need to bridge the gap between what was truly the depths of … Read more

Is OPEC For Real This Time?

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By Kris Rosemann On September 28, the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to cut crude oil production levels for the first time since 2008. The cartel reportedly agreed to limit production of member nations to a range of 32.5-33 million barrels per day (bpd) while leaders met at the International Energy Forum in Algiers, Algeria. As would be expected following such news, the price of crude oil has bounced, bringing market sentiment surrounding energy-related stocks higher along with it. The proposed production could be a reduction of up to 750,000 bpd from OPEC production levels in the month of August, but how the group of nations will reach such a production cut has yet to … Read more

Dividends Not Safe as Energy Markets Swoon

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We’ve been cautious on the oil and gas markets (XLE, AMLP) for some time, and that includes our October move closer to market neutral on the sector, but we’re still underweight the group. We’ve been saying that crude oil prices are more likely to hit the $20 per barrel level than move significantly higher, and we maintain our view that they may never again return to the $100 per barrel, a level many have grown accustomed to. After all, why should they? Unfortunately, the fallout continues to punish traditional “buy and hold” investors who have been trained to ignore most “news” and may still be holding on the belief of the fallacy of mean reversion, something that we believe cannot … Read more

Transaction Alerts: Moving Closer to Market Neutral on Energy

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The Best Ideas Newsletter portfolio has generated significant outperformance in part from avoiding many of the landmines across the energy sector during the past many months. We’ve done equally well in our calls in the Dividend Growth Newsletter portfolio, and we’re very proud of raising the issue of the importance of looking at non-GAAP free cash flow across pipeline entities. We believe that such a measure is the best one to assess the timing of free cash flows as they are generated, an important consideration for investors of all types, and not properly addressed in measures of distributable cash flow or a company’s dividend or distribution. Why are we now inching ever so slightly back into energy? 1. The market … Read more

Chevron: Cash Flow and Dividends Are Inextricably Linked

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We think it’s worth reviewing case studies at times to help members build a greater understanding of and an increased conviction in the products, tools, and proprietary analysis we make available to them. In the case of Chevron (CVX), the efficacy of the Dividend Cushion ratio in helping to predict a company’s future dividend policy was undeniable. The Dividend Cushion ratio is calculated for every non-financial operating company in our coverage universe and can be found in the data strip at the top of each firm’s Dividend Report. A ratio above 1.25 is generally viewed as GOOD. For new members, Chevron had been a holding in the Dividend Growth portfolio since its inception. However, the company was removed from the … Read more

Pain in Oil Not Likely To Subside Soon; Alibaba Disappoints

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Just how bad are we drowning in crude oil? Yesterday’s inventory report showed the largest weekly supply increase in over 30 years, since 1982. That’s how bad. Yet, knowing that crude oil prices are driven by supply and demand, pundits continue to be optimistic, perhaps overly so, about the timing of the recovery in the price of the black liquid (USO). Let’s first start with OPEC, and the Secretary-General Abdullah al-Badri, who said Tuesday that oil prices have bottomed as he “warned of a risk of a future price spike to $200 a barrel.” With inventories as they are and OPEC not ceding market share to US shale-based plays, we think the Secretary-General is drinking a bit too much Kool-aid. … Read more

Are the Oil & Gas Markets Doomed?

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Q: Are the oil and gas markets doomed? Valuentum’s Brian Nelson: In short, no. For one, if we thought the oil and gas space (XLE) were doomed, we would not be holding onto Chevron (CVX), Kinder Morgan (KMI), and Energy Transfer Partners (ETP) in the Dividend Growth portfolio. Instead, I think what we are witnessing in the oil and gas market is a flight to quality and balance-sheet strength. Our outlook for oil and gas equities has not changed before or after the recent fall in energy prices. Valuentum’s thesis accepts the fact that crude oil (USO) and natural gas prices will be extremely volatile, and that’s why we’ve gravitated toward firms such as Chevron, which has the strongest balance … Read more

$45 Oil Prices!?!? There Is Never a Sense of Urgency When One Is Prepared

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Image Source: Macrotrends The bull market in energy (XLE) has lasted for the better part of a decade. Ever since the turn of the new century, energy perma-bulls have made the case that “black gold” (USO) should continue its ever-upward price advance thanks to ongoing demand from emerging and developing economies coupled with reduced inventories and areas of supply. We’re seeing this thesis challenged right at this moment. In deciding not to cut crude oil output in the face of oversupply and falling prices, the Organization of the Petroleum Exporting Countries (OPEC), for the lack of a better phrase, is now essentially engaged in a price war with producers in the US that are using breakthrough technology to produce oil … Read more