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  • Roger S. Conrad

Issues

Move ’em in, Roll ’em Out

Investors have blown hot and cold toward the Niobrara Shale over the past several years, with a lack of takeaway capacity, uneven well results and elevated production costs offsetting the promise of an oil-weighted resource base. The huge successes achieved in the Bakken Shale and Eagle Ford Shale also overshadowed developments in Colorado.

But upstream operators have stayed the course and honed their production techniques to the point that the play is starting to shift from the exploratory stage to full-scale development. We highlight two of our favorite upstream operators in this play and a midstream name that expects to grow its payout by more than 33 percent this year.

We’re also taking advantage of the market’s recent strength to take profits on two Focus List winners that have achieved our price targets. 

The Meat of the Matter

The confluence of rising biofuel production and growing meat consumption in emerging markets continues to stress the world’s shrinking supply of freshwater and arable land. In this issue, we analyze these trends at length and highlight three stocks that stand to benefit from these powerful secular growth trends.

At the same time, we revisit our investment thesis and outlook for every stock in our extensive Coverage Universe in advance of second-quarter earnings season–a meaty project, indeed.

Taking Stock

With the S&P 500 flirting with a new all-time high in recent trading sessions, investors are sitting on some impressive profits. However, not every name within the energy patch have participated in the rally. Many oil and gas royalty trusts remain snake-bitten, with a massive downward revision to Chesapeake Granite Wash Trust’s discounted net present value representing the latest blow to investor confidence in this security class. 

At the same time, formerly red-hot names that provide marine seismic services have taken a breather after rallying considerably in the past few years. We take a closer look at the near-term catalysts for this highly cyclical industry and evaluate whether the recent retrenchment in share prices represents an inflection point before another rally or a precursor to more downside.

Emerging Opportunities

In this issue, we highlight an integrated oil and gas company whose share price doesn’t reflect its oil-weighted production, superior price realizations and potential to grow its quarterly dividend at an average annual rate of 15 percent to 20 percent over the next three years. The latest addition to our Focus List, this stock is poised to generate impressive returns once the market latches on to this underappreciated growth story.

Meanwhile, all the hype surrounding the potential for the US to eventually ship liquefied natural gas (LNG) to Asia has overshadowed the nation’s rising seaborne exports of propane. Famed investors Wilbur Ross and John Fredriksen have bet heavily on this emerging trend; in this issue, we profile the best plays for the individual investor.

Strategy Session

With the stock market due for a 10 percent to 15 percent pullback after its extended rally (the topic of my recent appearance on CNBC), we’ve opted to book gains on some of the stocks in our Focus List. As a replacement, we highlight an undervalued name that has the scope to grow its quarterly payout by at least 10 percent in 2013.

We also update our outlook for Linn Energy LLC (NSDQ: LINE) after delving into the upstream operator’s fourth-quarter results and factoring in its agreement to acquire Berry Petroleum (NYSE: BRY). 

Checking Up But Not Checking Out

There remains a great deal of confusion and misinformation about US trusts and how to value these securities.This misunderstanding often leads to mispricing, giving savvy investors opportunities to buy high-quality royalty trusts at attractive valuations and elevated yields. 

The two royalty trusts in our Focus List pulled back after announcing disappointing production and distribution numbers. Although we anticipated SandRidge Permian Trust’s (NYSE: PER) fourth-quarter hiccup, SandRidge Mississippian Trust II’s (NYSE: SDR) shortfall came as a surprise. In this issue, we update our valuation models and buy targets for both stocks.

We also do a deep dive into our favorite capital equipment company’s fourth-quarter and full-year results and revisit our investment thesis for the stock–a name that stands at the nexus of a number of growth trends related to the end of easy oil.

Profits by Air and Sea

For decades, few investors took the airline business seriously. In addition to decades of unprofitable operations, the industry’s reliance on periodic bankruptcies–though an effective means of labor negotiation and lowering borrowing costs–has the unfortunate side effect of wiping out shareholders’ stakes.

But change is in the air. In this issue, we explore the factors driving the US airline industry’s turnaround and explain why the group serves as an ideal hedge for the oil-levered names in an investor’s portfolio.

We also highlight on one of our favorite integrated oil companies, a name that is driving exploration and development in frontier basins and enjoys higher price realizations on its oil and gas production relative to upstream names that operate solely in North America. 

The Big Review

Every investor, no matter how seasoned, makes mistakes and buys stocks that end up underperforming. You should be wary of anyone who touts his or her perfect track record or infallible investment strategy.

Successful investors routinely reassess the validity of their investment theses, especially the rationale for holding names that have underperformed. Although focusing on your portfolio’s laggards can be an ego-bruising experience, this exercise helps to stop the rot and prevent the damage from worsening.

In this issue, we take an in-depth look at Focus List holding SandRidge Permian Trust (NYSE: PER), explore why the stock has struggled as of late and revisit our investment thesis. We also review our outlook for all the stocks in our extensive Coverage Universe.

Initial Public Offerings: Catching up with the Master Limited Partnership Class of 2012

Thirteen energy-focused master limited partnerships completed initial public offerings (IPO) this year–three shy of the all-time record set in 2006.

In the past, investing in fledgling publicly traded partnerships has proved to be a winning proposition and an opportunity to find value when the market bids stock prices up to frothy levels. However, investors should be forewarned selectivity is critical to this strategy’s success.

MLPs often grow their distributions at an accelerated rate in their first two years as a publicly traded entity. These rising quarterly payouts, coupled with a raft of research reports from Wall Street analysts, tend to attract investors’ attention and drive the stock price higher.

At the same time, brokerage and financial websites often misreport recently listed MLPs’ yield until the firm has paid a full year’s worth of distributions. This quirk gives investors an opportunity to buy these stocks before the herd realizes how much the units yield.

In this issue, we catch up with the class of 2012, focusing on the newest downstream operators and one publicly traded partnership that operates in a nontraditional business line.

Moving to Canada

Canada’s energy sector is home to promising growth stocks and a large number of dividend-paying securities that offer elevated yields.

Our neighbors to the north boast some of the world’s largest oil reserves, from Alberta’s vast oil sands to emerging shale basins and a series of heavy-oil plays across western Canada. Our favorite upstream operators have the wherewithal to grow oil production significantly in coming years, while the surge in drilling activity and output has created opportunities in the midstream and oil-field services segments.

And US investors shouldn’t overlook the benefits of exposure to the Canadian dollar. The nation’s financial system avoided the excesses of the US credit bubble and emerged from the Great Recession in solid shape. Canada’s strong economy and fiscal strength should support the value of its currency relative to the US dollar and the euro–an appealing prospect for many of our readers.

In this issue, we explore our top Canadian energy stocks.

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  • Live Chat with

    Elliott and Roger on Aug. 27, 2019

  • 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

    • Elliott H. Gue

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

    • Roger S. Conrad

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