In this issue:

With so many investors scrambling for income in this time of low interest rates, how much something yields has inevitably become the wrong question to ask. Better to focus on how much cash a business generates, and how much it might generate in a few years given its known avenues for growth.

These are the sorts of questions that would lead one to invest in TransCanada (NYSE: TRP), a leading Canadian midstream operator retaining most of its cash flow with a plan to double it by 2020.

It should get there, too, as Canadian shale producers seek out distant export markets. In the meantime, the yield is decent and secure, the valuation attractive and the stock in a clean breakout into record territory.

Once upon a time, Venezuela looked like it might challenge Canada as the leading supplier of crude to the US. But that was before Western projects were expropriated and production declined precipitously. Now the final bill for this foolishness may soon come due. And Venezuela’s government may be trying to sell its most valuable overseas asset to avoid paying it.

Meanwhile, closer to home, energy stocks have struggled since Labor Day as crude has dropped to 13-month lows. But our favorite canary in the coalmine, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) managed to hold its 200-day moving average yesterday as crude futures reversed to the upside.

So far, the selling pressure has remained contained, our portfolios continue to perform well and we remain optimistic better times are ahead. As for crude and natgas, demand should perk up once colder weather arrives, while supply will take a hit with the onset of winter.      

Portfolio Action Summary

• TransCanada (NYSE: TRP) added to the Conservative Portfolio. Buy below $62  

 Commodity Update

Crude oil prices remain weaker than in the first half of the year, with Brent crude dropping below $100 per barrel (bbl) for the first time in nearly a year and a half. As I write this, Brent is trading at $99.21, down $3.37 over the past two weeks. The price of  West Texas Intermediate (WTI) declined $0.79/bbl over the past two weeks to $92.75/bbl. The Brent-WTI spread has fallen to $6.46/bbl, and the contraction will pressure refining margins.

Natural gas prices are $3.98 per million British thermal units (MMBtu), an increase of $0.04/MMBtu from our previous report. The current price is $0.38/MMBtu higher than a year ago, and natural gas inventories remain 15% below the five-year average for this time of year. Some early forecasts are predicting another colder-than-normal winter, and it’s a safe bet that we won’t go into the winter season with higher than normal gas inventories.

In Other News

• The benchmark Brent crude fell below $100/bbl for the first time in 17 months.

• Venezuela’s state-run oil company PDVSA is shopping its US unit Citgo Petroleum in a deal that could bring up to $10 billion. (More on this below).

• Chesapeake Energy (NYSE: CHK) must face trial in Michigan on charges of felony racketeering and using false pretenses related to its land-leasing practices.  

• ExxonMobil (NYSE: XOM), ConocoPhillips (NYSE: COP), BP (NYSE: BP), TransCanada (NYSE: TRP) and the state of Alaska have filed paperwork with the Federal Energy Regulatory Commission for an 800-mile pipeline from Alaska’s North Slope to a natural gas liquefaction plant in the town of Nikiski.

• With oil prices below $100/bbl, floating storage is on the rise. A Chinese trader has booked the world’s largest supertanker to store crude at sea.

• After a year in which it has outperformed BP, ExxonMobil, and Chevron (NYSE: CVX), ConocoPhillips has finally been upgraded by Bank of America, from Underperform to Neutral.