Stock Talk – April, 2016

Stock Talk

Don D.

Don D.

Having studied and invested in many E&P also MLP’s and having done well doing so and missing the big jump off the bottom in Feb for adding more I could kick myself but rules are rules. With that and looking at the recent move in WTI do we feel that it will even drop into the mid 30’s again? I have done well in recently in WLL who still has a large block of credit available along with EOG and COG and have large abilities to grow if we suspect that WTI could during the summer move up to the mid 40’s or even 50. Also on the MLP side just reading your piece and doing my CAGR of the MLP’s find that consistently SXL and MMP have over time outperformed with a less volatility for MMP and more volatile for SXL compared to virtually all the other MLP’s. I like your new piece and am looking for the springboard positions to take advantage of the next WTI leg higher, not as a long term investment but a pure 6mo. to year trade. Example WLL over 100% since Feb. I know this was a long question but sometimes in-depth decisions take more space. Thanks in advance.

Igor Greenwald

Igor Greenwald

I think crude is fairly valued here relative to current fundamentals, and while it’s almost certainly going higher over the medium term just based on cost and supply dynamics, I’m having trouble finding value among the oily producers, many of whom never saw the huge (and in my opinion unwarranted) losses inflicted on the midstream securities. Old friend WPX looks more interesting than most to me, but many others haven’t been discounted enough to now look cheap. The gas side looks more promising to me, and you know the names we prefer there, but the midstream processors and shippers look best of all in light of the fact that there’s plenty of capital available for the drillers to maintain current production levels at current prices for the next year or two.

Peter

Peter

In today´s issue you you labeld ETE your best buy #1, whereas WMB isn´t even one of the best buys. Would you now recommend switching from WMB into ETE? And if so, why is WMB so much less desirable?

Igor Greenwald

Igor Greenwald

I generally would not recommend swapping out of one buy-rated stock into another; the Best Buys designations are intended to aid in the deployment of new capital rather than in the shuffling of current investments. Williams continues to trade at a significant discount to ETE’s offer, which could well be enforced by the courts, and it’s been dragged down so far by the dread over this merger that I think it remains a good value on its own even in the absence of the deal. I just happen to like ETE’s long-term prospects and current valuation a bit better. But the relative merits of a #1 Best Buy vs. “just” a Buy are often closer than the numerical rankings sometimes make it seem, I believe.

Peter

Peter

Crestwood (CEQP) jumped by 40% today following news of a joint venture derived cash injection and a 56% dividend cut, both strenthening the balance sheet to an extent which eliminates the need for further finaning. Given that the yield is still double digit, does this make it a buy?

Igor Greenwald

Igor Greenwald

Not for me. I just don’t know that this time is different for a management that has had to repeatedly revise its strategy and expectations, and in the wake of the big move there is obviously a lot less upside and more downside. Just don’t see the compelling value here relative to the risk,

Peter

Peter

How much does the fact that the costitution pipeline has been refused a permit by the regulator move the needle for WMB? Are the more regulatory risks for ETE and WMB?

Igor Greenwald

Igor Greenwald

There are always regulatory risks for the pipeline companies, and I think it’s hard to tell who has more at any given time. NY State’s refusal to grant the clean water permit for the Constitution was largely expected, and the issue will ultimately be settled by the courts. The 4% dip today in ETE and WMB (in the face of weaker energy prices) probably tells you the extent of the needle-moving from this development.

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