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Elliott Gue knows energy. Since earning his bachelor’s and master’s degrees from the University of London, Elliott has dedicated himself to learning the ins and outs of this dynamic sector, scouring trade magazines, attending industry conferences, touring facilities and meeting with management teams.

Elliott Gue’s knowledge of the energy sector and prescient investment calls prompted the official program of the 2008 G-8 Summit in Tokyo to call him “the world’s leading energy strategist.”

He has also appeared on CNBC and Bloomberg TV and has been quoted in a number of major publications, including Barron’s, Forbes and the Washington Post. Elliott Gue’s expertise and track record of success have also made him a sought-after speaker at MoneyShows and events hosted by the Association of Individual Investors.

Elliott Gue also contributed chapters on developments in global energy markets to two books published by the FT Press, The Silk Road to Riches: How You Can Profit by Investing in Asia’s Newfound Prosperity and Rise of the State: Profitable Investing and Geopolitics in the 21st Century.

Prior to founding the Capitalist Times, Elliott Gue shared his expertise and stock-picking abilities with individual investors in two highly regarded research publications, MLP Profits and The Energy Strategist, as well as long-running financial advisory Personal Finance.

In October 2012, Elliott Gue launched the Energy & Income Advisor, a semimonthly online newsletter that’s dedicated to uncovering the most profitable opportunities in the energy sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

The masthead may have changed, but subscribers can expect Elliott Gue to deliver the same high-quality analysis and rational assessment of investment opportunities in the energy patch.

Articles

The Case for Energy Stocks

A year ago, we reasoned that energy stocks could outperform the broader stock market despite our projections for weak oil prices in the first half of the year. Our thesis hinged on our view that oil prices would average about $50 per barrel in 2017 and that many US shale players, especially early entrants in the Permian Basin and central Oklahoma’s STACK play, could earn strong returns on capital in this environment.

Although we were consistently negative on some large-cap master limited partnerships (MLP) last year—including Energy Transfer Partners LP (NYSE: ETP) and Plains All-American Pipeline LP (NYSE: PAA)—we expected select midstream operators to fare well in 2017. Our preferred names offered exposure to the Permian Basin and other areas where temporary dips in oil prices wouldn’t affect activity levels.

This bullish outlook proved to be our biggest miss a year ago: Energy was the second worst-performing sector in the S&P 500, and the Alerian MLP Index gave up 6.5 percent of its value. Few energy stocks avoided the carnage that engulfed the sector over the first eight months of 2017. Even high-quality upstream and midstream names like Concho Resources (NYSE: CXO), EOG Resources (NYSE: EOG) and Enterprise Products Partners LP (NYSE: EPD) found themselves caught up in the bloodbath.

However, it’s always darkest just before the dawn. We thought that this indiscriminate selloff resembled the classic, panic-driven plunges that tend to occur toward the end of the bear market and positioned the Focus List accordingly. Energy stocks have outperformed in the new year, but we remain bullish on the sector for four reasons.

Focus List (Mostly) Outperforms and Portfolio Updates

The improved outlook for oil prices and the rotation into energy stocks has lifted most boats in the sector, though we’re pleased that nine of the 13 names on our Focus List have outperformed the S&P 500 Energy Index over an equivalent holding period. We review our Focus List and discuss earnings and other pertinent developments affecting our Portfolio holdings.

Positioning the Portfolios for 2018

Many investors’ tax rates will come down in 2018, making the next few trading days your best opportunity for taking tax losses on any underwater positions that may take time to recover. With investors facing higher tax liabilities in 2017 than next year, the benefit of writing off a loser is that much greater.

Of course, we prefer to avoid taking any losses and run the Energy & Income Advisor Portfolios with an eye toward long-run returns. However, given the sector’s recent down-cycle and the topsy-turvy performance of many energy sub-industries over the past few years, we have a few positions that haven’t worked out because of timing issues or a faulty investment thesis. These sales will help to offset the handful of gains that we took over the course of the year.

Positioning for the New Year after a Topsy-Turvy 2017

We maintain our bullish outlook for oil prices and cyclical energy stocks as 2017 winds down. Although we won’t hesitate to modify our views and positioning in response to incoming data points and developments, we expect 2018 to be less tumultuous for the energy sector, making the stocks easier to own and requiring less trading to deliver differentiated returns. Energy stocks could also benefit from the ongoing rotation into value-oriented sectors.

12/15/17: Goodbye, IDRs

Although the terms of Marathon Petroleum Corp’s agreement to eliminate MPLX LP’s incentive distribution rights could have been better for the master limited partnership, the transaction ultimately reduces the midstream operator’s cost of capital.

Second Time’s a Charm? The Case for Selective Exposure to Oil-Field Services

Heading into 2018, we like the setup for US-levered oil-field service stocks, though investors will need to remain selective and avoid the problem spots and value traps that lurk in this industry.

What’s changed over the intervening months?

Our outlook for oil prices is certainly more bullish than in late 2016 and early 2017, when we warned that the US production response would surprise to the upside and offset OPEC’s production cuts.

Although oil prices have rallied on several occasions over the past three years, we (rightly) regarded these upswings as ephemeral because the oil market remained in contango—that is, longer-dated futures commanded a premium to near-term contracts. This environment encourages market participants to store oil for future delivery and makes it easier for producers to hedge expected output.

In addition to improving investors sentiment, the recent strength in crude-oil prices should support solid capital spending among US exploration and production companies, many of which have taken advantage of the rally in WTI to lock higher prices on expected production.

Nevertheless, sentiment toward the industry remains cool, with investors erring on the side of caution and viewing the group as a show-me story—one of the big reasons oil-field service stocks hadn’t participated in the rally in crude-oil prices until recently. At these levels, the downside risk in many oil-field service names appears limited in the event that our investment thesis doesn’t work out.

 

Today, crude oil is in the early innings of a cyclical recovery. The market for Brent oil (an international benchmark) entered backwardation earlier this year, with front-month futures trading at a premium of $2.89 per barrel to volumes slated for delivery 12 months later. This structure discourages market participants from paying to store oil and indicates a tightening supply-demand balance.

 

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  • Live Chat with

    Elliott and Roger on Jan. 30, 2018

  • Portfolios & Ratings

    • Model Portfolios

      Balanced portfolios of energy stocks for aggressive and conservative investors.

    • Coverage Universe

      Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.

    • MLP Ratings

      Our assessment of every energy-related master limited partnership.

    • International Coverage Universe

      Roger Conrad’s coverage of more than 70 dividend-paying energy names.

    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor