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

To: E_K_S who wrote (46909)	3/7/2012 10:07:19 AM
From: Spekulatius	2 Recommendations Respond to of 78627

re DPM Not quite sure what the best way to determine the "value" for these MLP's. You can not use PE or dividend yield. Clownbuck suggests that EV/EBITDA is a good measure but compared to what? I am holding these MLP's mainly for their distributions so their ability to generate cash flows are important to me. I like EV/EBITDA because it is possible to compare pipeline assets this way regardless of the tax status. Good pipeline assets have trades as low as 7-8x EBITDA in 2002 and 2008 (probably even lower in 2008) and that is when value investors buy them. MLP usually go for a premium to the value of taxable C- Corporation but i hate to pay much higher prices just because an asset is in a tax shielded MLP. The EV/EBITDA ratio depends on the life of the asset - a long aul pipeline may have a service life of 50 year+ and hence deserves a higher EV/EBITDA ratio than for example a gathering asset with a service life of 10 years. EBITDA has become a dirty word in valuation because of the shenigans that Worldcom and Global Crossing did but it's really a quick way to compare the same assets/companies across different asset classes, countries or forms of incorporation. Right now, the only way to acquire a pipeline asset (although embedded in a conglomerate) is buying L stock, imo. BRK has some too of course but they are very small relative to the total size of BRK.