Permian Basin Royalty Trust: The Cramer Effect

| About: Permian Basin (PBT)

Last night on CNBC’s Mad Money, Cramer identified a stock that he believed has been wronged by the market. The relatively small oil and gas company from Texas, Permian Basin Royalty Trust (NYSE:PBT), was down 42% in the last month, which is twice the 21% decline in crude oil over the same period. Additionally, Cramer is convinced that oil has bottomed and is showing signs of improvement of late, saying,ockham historical valuation PBT

“…but crude is up 33.5% since the 52-week low of $33.87 in December so Permian Basin shouldn’t be lingering here. I think it’s bad algebra… Product, only down 2%. The average {oil and gas producer} will be down 8%. So we know it’s not running out of oil any time soon. The yield, this varies with the price of crude and to a lesser extent, natural gas. Citigroup has the rights on this, and expects Permian Basin to pay $1.11 per share. That assumes that oil prices will stay at $44 for the rest of the year. It’s a 13% yield at the current price, are you getting that from anything else? Even if Permian Basin keeps its distribution at very low February level which is is unlikely given the stabilization and increase in oil…owning Permian Basin is like owning GLD, the tracking stock for gold, and here is the bottom line. All MLP’s are equal like Permian Basin (PBT), which has become way too cheap compared to its peers and the price of crude and it’s 6.5% yield based on the company’s February pay out.”

Clearly, Cramer believes that there is substantial value in this stock; he went on to say that the last time oil was trading at $50 a barrel, the stock was near $16. Now that crude is approaching this level again the stock is little more than half that price. The thing that he particularly loves about this company is the yield, which is paid monthly, and varies basically along the same path as the price of crude. Even with crude at the exceptionally low prices in January, the 8 cent monthly dividend corresponded to an 8.3% annual yield. As you can see from Cramer’s quote, Citi (NYSE:C) thinks that the yield stands to appreciate quite a bit.

More than anything, this situation shows the power than Cramer holds. Whether you like him or not, he is a force to be reckoned with, as PBT is up 23% on the day. The company has no news surrounding it other than Cramer; he is a market mover!

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