Permian Basin Royalty Trust: The Cramer Effect

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 (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,

“…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 (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!

Original post

Comments

[Joe Chase:]

I own PBT and saw it was up 23% this morning. Just from seeing that I knew Cramer must have recommended it the night before. I bought it a little while after he recommended it almost exactly 1 year ago on March 5th, (+9% the next day), and then again on June 27th, (+3.3%). This is by far the biggest surge in the day after his recommendation, and I think that PBT is undervalued.

Feb 27 04:01 PM

[User 365863:]

cramer failed to mention that pbt divends are taxed at the regular tax rate and you should have them in a 401k or an ira to avoid this.

Feb 27 06:23 PM

[whisperonth...:]

One might mention that 10 days ago (on the 17th), PBT dropped the dividend to $0.04354. That's only a 5.42% yield (or thereabouts), which is still way better than even CDs will give you now. But it's a far cry from 8%. I held it for a while, but now am searching for better yields. Perhaps when they get back to the 8% or more, I may go back. Not yet.

Feb 27 09:30 PM

[SALTAWAY:]

Joe Chase
I hope you sold off some at the 23% jump. When it goes back down to it's previous level you could buy it back. Cramer effects dont last very long.

Feb 28 09:01 AM

[henarl:]

The Cramer effect is strong but short lived and certainly not the reason to own PBT, or any other stock. The reason to own PRT is it's dividend yield and the fact that oil prices have got to increase over the long term. Long PBT and several other oil stocks.

Feb 28 10:35 AM

[koolsool:]

What I do not understand about Cramer is he will not say anything good about the Canadian energy trusts. They have much higher yields & do a lot more drilling to increase their reserves. I know there are tax issues, but 20% to 40% yields make up for them. Some have tax holidays way beyond 2011. The Canadian trusts have just been crushed to obsurd levels. I guess he must know something that I don't.

Feb 28 10:37 AM

[2old2care:]

Cramer's Broadbrush again...
He is quoted as calling PBT a MLP! He has no clue. Do not buy anything based on cnbc.

Feb 28 11:34 AM

[Steve Ward:]

We have seen this time and time again. The publuc and the business press crown someone a stock/investment guru. A self fulfilling prophecy ensues of the more who watch the more the recommendations move and the more the king guru seems prophetic.

And time and time again, the new prophet sooner or later loses his throne.
Nothing to do with PBT, except on the very macro.

Feb 28 03:31 PM

[toobad41:]

The PBT is something I am well acquainted with. The primary income is from 75% royalty in oil and gas producing properties southwest of Odessa, Texas in the Permian Basin. The property is operated by Conoco-Phillips but managed by Schlumberger IPM. It produces from at least 15 different reservoirs in the Permian and Pre-Permian formations. Production is over 5500 barrels of oil and 35 million cubic feet of gas per day. This an excellent producing area with many years of productivity ahead. This is a very good place to put your money. It typically nets over $100 million yearly after expenses and taxes.

Feb 28 07:21 PM

[henarl:]

koolsool: Yeah, you're right - HTE has got to be a bargain at $5, even if they cut their dividend. Long HTE.

Feb 28 08:44 PM

[ericinNE:]

CanRoy's in general: Better return than US MLP's. Tax issues are a non-issue, most have big tax loss carryovers that will carry them out to 2014/15. IRA or non-IRA hold is a wash. The 15% foriegn tax gets kicked back at tax time as a credit, but you still have to pay the US dividend tax in a non IRA account. You don't get the US tax credit in an IRA account, but don't pay any US tax on the dividends. Either way, same/same. If Obama jacks the cap gains rate, the Canadian tax could actually end up being a bargain, until they jack the rate in 2011 (supposedly; that could change, yet.) The exchange rate will kick the return up some when the dollar finally gets around to devalueing
HTE: What a great return at last price! 58% annual on $4.97 a share. No way that can last, but still! HTE's problem is their debt, a good lick over industry average. Might bite'em, might not. The split the difference play is PWE. Way more likely to be able to sustain and increase their dividend after their most recent cut ($.23 from $.34 C.) 25% annual yield on $8.83/share, beat down price like all the others.
(Prices/yields per Yahoo Finance close of Friday.)
Long PW

Mar 01 07:45 AM

[ericinNE:]

E

Mar 01 07:46 AM

[koolsool:]

Yes, the Canadians are a great buy here. But some of us bought them when the yields were 15% & rode them all the way down. I don't feel like I made a good choice, even though at the time, I thought I was being conservative. I hope the share prices have a chance to go back up again after the hedge funds are done manipulating them down by endless selling. HTE has high debt because they bought a refinery. They are integrated like COP or XOM. I thought that was a good move at the time too.

Mar 01 11:05 AM

[microdol:]

I keep reading about the 'Cramer Effect', I've said it on other blogs, and I will say it here: back in December (?) Cramer ALSO suggested buying into high-dividend yielding stocks, and PBT was one of the four he suggested: at the time PBT was around 15, and it went NOWHERE.

I know because I have been dabbling in PBT for about 6 years now, it's one of those 'hidden gems', I sold mine out at just under $25/share, and figured I would buy back in when (if) it ever got back down to around 10.
I was concerned because I was watching it at 15 - just biding my time, and I figured when he suggested it, that it would jack up to 18 or so, but it never did. It didn't budge. So now he suggests it (again), and it goes up 21%..... go figure.

At any rate, it looks like it is stabilizing now, I'll think about buying back in.

Mar 07 12:32 AM