MLP Watch List
The three master limited partnerships (MLP) on our watch list share several qualities: strong balance sheets, solid management teams and well-positioned asset bases that will generate organic growth in the intermediate term.
Canada’s Comeback
Canadian energy stocks have rallied hard with oil and gas prices, but investors should remain cautious, stick with our strategy and focus on high-quality names.
Oil-Field Services and Equipment: Exercise Caution
Despite the recent rally in shares of oil-field service providers, our negative outlook for activity levels in the international market and skepticism regarding the timing and magnitude of a recovery in North America explains why we remain underweight oil-field services and capital equipment. Many of these stocks have rallied too far, too fast and don’t account for overcapacity that remains to be worked off from the boom years.
Refining Our Outlook
The second golden age of refining appears to be winding down, especially for the inland refiners that flourished at the height of the shale revolution. The price spread between WTI and Brent has narrowed dramatically, erasing a huge competitive tailwind for US refiners. At this juncture, the potential downside risk outweighs any upside. Valuations and investor sentiment need to adjust to these realities. However, a painful first-quarter for refining operations, coupled with depressed oil and gas prices, could land shares of integrated oil and gas companies on the discount counter.
Deal Talk: Energy M&A
As with every down-cycle, the collapse in energy prices will bring an uptick in mergers and acquisitions once visibility improves and bid-ask spreads. Investors should continue to focus on quality; all too often, distressed sales result in take-unders.
Good Bond Hunting
Although bonds lack the liquidity of equities and require more up-front capital to purchase, income-seeking investors shouldn’t overlook the opportunities in this corner of the energy market. Because bonds have a higher position in the capital structure than stock, a company usually privileges its interest payments over dividends or distributions to investors who own common shares or units.Bondholders also benefit more from dilutive equity issuance than shareholders.
Still in Shipshape?
The two tanker stocks in our model Portfolios have underperformed significantly of late; we examine the potential risks and rewards associated with each of these names.
Talking Tankers
The supply-demand balance for oil tankers will weaken over the next two years, with capacity additions outstripping demand growth related to emerging trade routes, global production trends and increasing oil consumption. Nevertheless, many tanker stocks trade at valuations last seen when the market faced much bigger challenges. Meanwhile, the outlook for refined-product tankers looks better, with a smaller order book and Saudi Arabia’s growing focus on exported value-added products instead of crude oil expected to keep the supply-demand balance relatively tight.
How Our Riskier Fare Fared
Fourth-quarter results from these riskier master limited partnerships answered some question, but a great deal of uncertainty remains.
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Live Chat with
Elliott and Roger on Sep. 26, 2017
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
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Roger S. Conrad
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor
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Elliott H. Gue
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor
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Peter Staas
Managing Editor: Capitalist Times and Energy & Income Advisor