A Crash Course in Risk Management

By Igor Greenwald • January 19, 2016 • In Brief

The year couldn’t have started any worse. As of Friday, the Alerian MLP Index had given back all of its gains, including distributions, since September 2010.

Expect those losses to be partially reversed in a year or two, once energy prices reclaim levels that allow producers to dream of making a profit once again. But the current crash is already subjecting the midstream sector to considerable stress, and in the short term is likely to dent its cash flows.

Our busy agenda this month includes:

New rankings of Best Buys
A Portfolio Update downgrading all other standing recommendations to Hold
An In Focus on why MLP bears aren’t crazy even if they’re overly pessimistic
The tally of last year’s disappointing performance by our picks
A reasonably optimistic outlook for the remainder of 2016
News and Notes on the recent fundraisings in the energy sector

Investor sentiment is at an extreme that typically produces higher equity prices in the short term at least. And the long term will not be shaped by crude at $30 a barrel.

Portfolio Update

All recommendations other than the updated Best Buys downgraded to Hold
Plains All American (NYSE: PAA), Spectra Energy (NYSE: SE) and TransCanada (NYSE: TRP) moved from Conservative to Growth Portfolio
Archrock (NYSE: AROC), DCP Midstream Partners (NYSE: DPM), NuStar GP Holdings (NYSE: NSH), Plains GP Holdings (NYSE: PAGP), SemGroup (NYSE: SEMG), Targa Resources (NYSE: TRGP) and Williams (NYSE: WMB) from Growth to Aggressive Portfolio.
Buckeye Partners (NYSE: BPL) and Cedar Fair (NYSE: FUN) moved from Aggressive to Growth Portfolio
UGI (NYSE: UGI) and EQT Midstream (NYSE: EQM) moved from Growth to Conservative Portfolio
Magellan Midstream Partners (NYSE: MMP) buy limit reduced to $80
Energy Transfer Equity (NYSE: ETE) buy limit reduced to $15
Enterprise Products Partners (NYSE: EPD) buy limit reduced to $30
Capital Products Partners (NYSE: CPLP) buy limit reduced to $5.50

Stock Talk

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Mr. Ed, The Talking Horse

01/19/16 ‐ 5:06pm ET January 19, 2016 at 5:06pm ET

Igor, thank you for this cogent issue. I do wish that some of the more beaten down companies such as ETE and CPLP would issue statements such as the one recently provided by Eurnonav to provide investors with guidance.

Kris Vassallo

01/25/16 ‐ 5:42pm ET January 25, 2016 at 5:42pm ET

I think ETE is due to announce their distribution this week so we will probably hear something then?

Igor Greenwald

01/25/16 ‐ 11:01pm ET January 25, 2016 at 11:01pm ET

They should be announcing the distribution this week, but we’ll likely have to wait until the next week’s results for future distribution policy pronouncements and forecasts. Unless something is announced regarding the Williams deal sooner, of course.

Patrick Knotts

01/25/16 ‐ 4:52pm ET January 25, 2016 at 4:52pm ET

What is your point of view on MLPL given the recent announcement?

01/25/16 ‐ 10:45pm ET January 25, 2016 at 10:45pm ET

It will be redeemed (cashed out) on Feb. 1 based on the fair value as of the close on Jan. 28. Today’s closing price, at 12.11, is 4% below the UBS-provided “current indicative value” of 12.59, which you can always check here: http://etracs.ubs.com/product/detail/index/ussymbol/MLPL (subject to a 15-minute delay.) So long as that discount persists it makes sense to wait until Thursday’s close if necessary and then get cashed out by UBS next week.

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