Let’s dispense with small talk. Subscriber Steve Keller has a Stock Talk question that’s likely on many readers’ minds right now:

Igor,
I hold mostly “conservative” rated MLPs that you are still recommending as Buys, even as their prices are dropping by several percentage points each day. Most of these companies are reported by you to have little or no involvement in oil production and/or distribution, but are instead focused on natural gas (midstream services), and their revenues are supposedly tied to long-term contracts that should not be affected by the price of oil. Why do you think that these companies, companies that service natural gas production, processing and distribution, are being hit so hard? Also, I’ve read that the Saudis will stop their monkeying with the market when oil hits $45 per barrel. If this is the case, what will the effect of say, $45 oil be on the distributions of these companies, (such as EEP, EPD, and ETP)?

Steve,

All the MLPs in our Conservative Portfolio are in fact largely insulated from the effects of lower oil prices years into the future, if they’re affected at all. All of our (and theirs) assurances about the security of their cash flows still apply.

Their prices didn’t fall based on a detailed analysis of next year’s likely distributions. They fell because professional investment managers and retail unitholders either could no longer stomach the daily depreciation, wanted to lock in losses for tax reasons, didn’t want to hold anything associated with energy, or all of the above.

If you take a look at the charts of these MLPs from the first half of the year, you’ll see relentless appreciation and price-insensitive accumulation. And if you look at our issue archives from the same period you’ll find repeated warnings that this new hot money is likely to be tested in the eventual correction.

We’re in the middle of this test now, and if you think $40-per-barrel crude is coming and well be the new normal, that’s one answer. But, as I noted last month, an analysis of longer-term oil fundamentals doesn’t support it. From where I sit, the odds favor an eventual  recovery back to the $70 to $80 range more indicative of marginal production costs. And in that case every MLP we recommend will do fine and is not deserving of the recent discounting most have suffered.

That doesn’t mean the fair weather MLP fans will be back; with “shale boom fever” cured for the time being, it’s probably safer to assume they won’t be.

The good news is that this allows patient investors to lock in more favorable yield on tax deferred income, in an environment where a reasonable and reasonably secure yield is still hard to come by.

We can’t control how long the tax-loss selling or the selling at the behest of institutional risk managers lasts. But we’re in charge of our own response to the drop in prices.

Ours was to search high and low for opportunities created by the market dislocation. That’s led us to the gas driller EQT (NYSE: EQT), which is building a midstream business in the Marcellus largely with other people’s money, as elaborated in this month’s first New Buys feature.

We’ve also rounded up three picks in a tanker industry that’s benefiting hugely from lower oil and fuel prices. You’ll find more on the budding shipping recovery in Sector Spotlight.

The recent troubles of upstream MLPs are analyzed and explained in this In Focus feature.

After recommending two drilling partnerships earlier in the month, we make the case for them in the other New Buys feature here.

What’s happened to MLPs over the last month is nothing they haven’t seen before, and weathered well. Veteran investors in this sector know the drill: it almost never pays to sell when everyone else is itching to do so.

Portfolio Update will return next month along with a revised list of Best Buys for 2015 and a breakdown of our record over the past year. May the holidays bring you joy and relief from market worries in the meantime.

Portfolio Action Summary

• EQT (NYSE: EQT) added to Aggressive Portfolio. Buy below $100
• Scorpio Tankers (NYSE: STNG) added to Aggressive Portfolio. Buy below $9.50
• Capital Products Partners (NASDAQ: CPLP) added to Aggressive Portfolio. Buy below $9
• Teekay Tankers (NYSE: TNK) added to Aggressive Portfolio. Buy below $6
• Memorial Production Partners (NASDAQ: MEMP) buy below target lowered to $15 in Aggressive Portfolio
• Vanguard Natural Resources (NASDAQ: VNR) buy below target lowered to $16 in Aggressive Portfolio