The Short Case for Nustar Energy

This week, President Obama’s new administration will be dealing with Wall Street bonuses and executive compensation that will be included in the TARP program for those companies seeking money from TARP to heal them survive. Next week, the administration will be dealing with financial industry issues after discussions between industry reps and government officials over the weekend. Obama scolded Wall Street firms for giving out large bonuses, while at the same time asking the government and taxpayers for bailout money - a paradox, to say the least.

My technical scans this Monday morning are showing a lot of sell candidates. The market simply does not look that healthy right now, and things look like there still more pain to come before things get better. I’m looking at an energy company, which operates oil pipelines, storage facilities and asphalt refineries. It posted higher than expected quarterly profits last week, assisted by a three times increase in sales at its asphalt and fuels marketing segment. The company also provided a first quarter earnings range, the upper range of which was in line with analysts' estimates. Long term I like this company fundamentally. Short term, I’m seeing a low-risk high-reward short sale on it. Short it now, and or wait for a pullback to buy in longer term later on.

Short Sale NuStar Energy (NS)

NS Trade Setup:

• Sell Entry: 48.61 to 49.71
• Stop-Loss: 52.63
• Take Profit Areas: 42.24, 39.94, 37.65

NuStar Energy Company Profile

NuStar Energy L.P. provides terminalling services for crude oil and refined petroleum products to the producers of crude oil, integrated oil companies, chemical companies, oil traders and refiners. The company’s operations are managed by NuStar GP, LLC, which is the general partner of Riverwalk Logistics, L.P., its general partner. NuStar GP, LLC is a wholly owned subsidiary of NuStar GP Holdings, LLC (NuStar GP Holdings).

The company conducts its operations through its wholly owned subsidiaries, primarily NuStar Logistics, L.P. (NuStar Logistics) and Kaneb Pipe Line Operating Partnership, L.P. (KPOP). It has five business segments: refined product terminals, refined product pipelines, crude oil pipelines, crude oil storage tanks and marketing. In March 2008, NuStar Energy, L.P. announced that it has completed its acquisition of CITGO Asphalt Refining Company’s asphalt operations and assets.

Disclosure: Author is short NS.

Comments

[jamookey:]

Good Luck.In a market where the only returns are dividends,and many companies are cutting or eliminating them,the author suggests we short one of the few companies beating estimates.I don't know.He could be in for a disappointment.

Feb 02 10:54 AM

[bcs5056:]

I do not see any substantial evidence that Nustar Energy will decline relative to the entire market. You seem to have picked a decent short term stock with an uncertain future, while you argue the opposite. They have debt almost equal to their market cap and expensive EV/EBITDA and P/E
and an expensive dividend that will need to be cut unless their business performs well.

Feb 02 09:13 PM

[mc2406:]

I don't get the negative vibes in the specificcompany data. I can only guess that he has seen the recent run ups in all MLP stocks and oher energy infrastructure stocks and guesses that they will pull back short term on technical reasons.

Feb 03 11:13 AM

[k9s-4-k8:]

I'm wondering how you could be short on Feb 2nd knowing that it goes ex-dividend Feb 3rd. So, you're already taking a hit for $1.05.

Feb 03 03:50 PM

[Michael Mic...:]

Very interesting and notable comment above about why we would go short on Nustar days before the ex-dividend that just hit yesterday Feb 3. Lots of reasons actually.

Main Answer: The news is already baked into the cake, and buying stocks for just the dividend play is not that great a way to earn money from stocks in our opinion especially in this current market.

Is investing in dividends theme is a strategy of last resort to somehow justify that its time to buy stocks for whatever reason?

Buying just for the dividend? What happens if the stock tanks more than the dividend?

We are expecting stocks to take another big hit to the downside anytime now. After that, we might consider buying into a dividend buy theme. The worst is yet to come right now, and just because stocks have been and are oversold relative to recent history does not make them a buy right now. Sentiment, fear, greed drive people to buy and sell stocks no matter who they are. The fundamentals don't work when the trend is your friend, whether to the upside or the downside.

Currently we are sitting on a 3.5% profit shorting NS. We shall see if we are rewarded with more or not. We saw this trade as a short-term low-risk high-reward position and so far we've been proven right. If we are wrong later on, we take small stop-loss and move on to the next buy or sell opportunity.

invest2success.blogspo...

Feb 04 09:47 PM

[mpharbold1:]

I find it odd you are shorting a company that you actually like long term. I understand your logic of expecting a sharp market selloff. But why not short something you dislike long term as well? For example, isn't SBUX destined for $5 and possibly even declaring bankruptcy within the next 2 years?

Feb 05 06:26 AM

[Michael Mic...:]

The reason why we are shorting Nustar is our low-risk high-reward auto-trade trading model placed the trade. Short, intermediate, and long term there are trade opportunities long and short even on the same stock. We take advantage of the low-risk high-reward trades in the markets. If you want to be a long term investor in Nustar, to protect your long position, you might want to hedge it by shorting it, or selling calls or buying puts on it from time to time. This will put the risk reward ratio in your favor. Of course you would want a disciplined trade plan to execute positions like this to always have low-risk high-reward investing trading in your favor.

Knowledge > Goals > Plan > Action > Success

Feb 06 06:46 PM

[jamookey:]

2/12/09,NS up1.45$.So much for INVEST2SUCCEED's puts.there are much more profitable short opportunities out there.

Feb 12 04:59 PM

[Trading Nymph:]

It is clear you have not gone thru the last conference call. This company is a thing of beauty and IMHO the recent downgrade was one of the most idiotic actions ever.

Feb 15 02:46 AM

[Michael Mic...:]

Closed NS Sell Position last week with small profit. Off to the next low-risk high-reward trade opportunity.

Feb 16 07:07 AM