That overriding question looms large over MLPS as we have watched them continue to sell off while the rest of the market heads toward new highs. In 2 months since the July top we went from an almost zero spread verses the 10 year to spreads over 3 points in some instances. Here are three examples of companies that have already pre-announced distribution increases.
9/27 Q1/08 Annual
EV PARTNERS...........................5.1%..........6.1%..............$2.24
LINN ENERGY...........................7.1%....;.....7.9%..............$2.52
BREITBURN...............................5.1%.....;;...6.9%..............$2.32
Linn Energy is priced to yield nearly 8%. Last time this happened was when the stock was in the mid 20s before its run to the lower 40s. Not saying necessarily that another big move is coming but you have to believe the downside here is limited by these really large yields and the large yield spreads.
Now whether this is a longer term buy signal depends on many other factors. Take a look at the MLP index back in July of 2005 after the last spike in crude oil to 80 bucks. The index topped at 270 and began a correction which bottomed at the end of Q4 at 238.
Now there are some differences from 2 years ago. First off crude dropped to near 50 from that spike...no sign of that happening now. Also Natural gas spiked to 15 dollars and dropped steadily from there. Nat gas may have bottomed at 5 dollars a few weeks ago and is now back to near 7 bucks. So at best Nat gas will be hanging around these levels. Its hard to get clues from the 10 year since it was under 4% in mid 2005 and MLPS rose in the face of a couple of rallies to 5.25%. So there are all kinds of conflicting signals here. Maybe it really all boils down to portfolio blowouts by funds who are abandoning these high yield vehicles and moving into those sexy tech stocks. Still i have to think that you could do worse than picking this area as an entry point for some MLPS that have been sold down quite hard.
No corporate news this morning and no upgrades or downgrades so far.
joseph cioffi's Source Page - Associated Content
2 comments:
Cleary it is better-but harder-to buy when yields are higher and growing then when they are low and/or are not growing.
Clearly, if the recent mlps/gps on the Reg.SHO list are indication that hedgies are selling to drive down unit prices, to make growth and acquistions more difficult, we could see more pressure. As some of these are relatively small cap and low trading volumn, it is easy pickings for short hedges.
Therefore, this may be good entry point, but I like your tech analysis and would like to see recovery to MA rather than try to catch "a falling knife."
Would like to see removal of some mlps from Reg. Sho, rather than more added.
Thoughts and isn't this current situation why "buy low"is a correct but difficult to execute dictum.
Thanks Joe,
V
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