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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (38954)	8/25/2010 12:00:20 AM
From: Paul Senior	Read Replies (2) \| Respond to of 78464

EPD. Spekulatius, for a different way to play the E&P's, I'm looking at limited partnership EPD (mentioned by EKS as being in Tortoise fund). Stock prices of limited partnerships have risen of course, and distribution yields have fallen even as distributions may have increased. EPD yields 6.2% per Yahoo. Tiernan Ray in Barron's today wrote: "Overall, the easy money for the moment may have been had (edit: referring to energy MLPs), given that money has been flooding into the sector, with 12% and 25% increase in dollar volume in Q2 and now in Q3, respectively. The money’s been chasing MLPs because of low rates (versus high cash flow yields for MLPs) and because MLP distributions are taxed at ordinary income rates, unlike stock dividends. But weak GDP expectations could keep cash flow growth at the MLPs “muted” in coming months, in general. Longer term, Durbin is still favorably disposed toward MLPs, as the dividend tax issue should continue to push some investors into the MLPs. Moreover, if the Bush tax cuts “sunset” this year, it could add 12 percentage points to MLPs’ relative returns, he believes... At the same time, Durbin (edit: Goldman Sachs analyst Theodore Durbin) raised price targets across the board, with his “Buy”-rated picks Sunoco Logistics (SXL) rising to an $87 price target from $80, and Enterprise Products Partners (EPD) rising to a $41 target from $38. But Durbin’s strongest pick of the bunch is actually diversified pipeline operator Spectra Energy (SE)." In looking at these companies in library articles, I found that one analyst said about SXL: it has the "highest quality from a price performance measurement". Again, here too, I shake my head, not understanding what his statement means. -g- (And SXL appears too expensive for me anyway.) About EPD it was written, it's in a lot of "developing energy areas". I looked, and I like what I see. Apparently as a midstream energy mlp, its goal is to earn fees at every link of the value chain. It's in three areas where there's E&P activity: Haynesville, Barnett, and Eagle Ford (I like Eagle Ford!). So EPD should profit whoever explores and produces in these developing areas. I'm considering EPD as a conservative buy and hold.

To: Paul Senior who wrote (38954)	8/25/2010 1:14:05 AM
From: Spekulatius	Read Replies (1) \| Respond to of 78464

re E&P - I agree that a lot of money can be made with E&P but I have a hard time to tell the winners from the loosers. I do seem to recall the looser's better than the winners - there was DPTR, DBLE and many other flameouts. There is always a new crop of E&P's around to ignite excitement - IOC, MHR are the ones currently. So I tend to stick more with what I know - value companies based on proved reserves in the ground. The way I see it, small E&P's do well when crude prices are rising - they their reserves increase in value, they can borrow more, create more value. The same feedback look works in reverse in a deflationary environment which we had in 2008 and 2009 and may have again right now. In this environment, only the cost leader thrive - companies like EOG, UPL, XTO. So I think for a small E&P, the management is more important than the perceived quality of assets. A good management will probably find good assets to explore while a mediocre or outright bad one will botch it even if they happen to sit on good assets. But how do you find a good management before it's obvious to everybody else based on their track record? What I like to do for example is to look in presentations from good companies with strong management teams and learn about other companies in comparative studies. For example UPL had a nice chart showing reserve growth/share over a couple of years (P. 6) : phx.corporate-ir.net GMXR for example shows at the bottom of the barrel with a reserve shrinkage/share of over 10% annualized. Together with the fact that I pointed out about the G&A costs running at around 1.5$/MCFE, with not much indication of economies of scale; I don't really think that GMXR is worthy of an investment (maybe a Spekulation <g>). Anyways, NG looks like a hopeless case with a shear endless supply of potential shale plays lined up. it's going to be hard to make money selling NG is North America for all but the lowest cost operators since any slight rise in NG prices will bring a new shale in play that would otherwise be non-economical. As for the oily plays, I sort of like NXY amongst he bigger players with somewhat solid base operation and as an option kicker large oil sand holdings that may be great if crude goes higher. GEOI does not seem to be that cheap but seems to be a good one to keep an eye on since they are still small and executing well, as far as I can tell.