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Introduction

I wrote my first articles about all the publicly traded midstream players of the U.S. and Canada in late March 2013. I separated them into three groups, judging them by their market cap. I determined that the intermediate players were those with market caps from ~$5 billion to ~$15 billion. The small players had market caps below $5 billion and the major ones had market caps higher than $15 billion.

In those articles, I also provided my bearish and bullish calls along with the reasons that supported my calls. Moreover, I noted that stocks are not birds to be bought when they fly high. This is one of my investing principles that has saved me a lot of money during the last 25 years. I prefer the bottom fishing bets instead, when they are also supported by good fundamentals.

The Yields

When I wrote those articles, I also mentioned that I am not a momentum trader. I never chase prices or force any investment. I always wait for the right moment dictated by either price or market condition to pounce. This is the best way for me to get good returns on my investments, beating by far the performance of the major indexes (i.e. S&P's 500, Dow Jones Industrial Average, Nasdaq Composite and Russell 2000).

To give you an idea about my stock picks, I was long on Surge Energy (OTCPK:ZPTAF) and Rock Energy (OTCPK:RENFF) with an average buy at ~$3 and $1 respectively. Both stocks have yielded ~90% and ~30% since my calls.

Meanwhile, I was bearish on James River Coal (JRCC) that has gone from $3.5 to $2, the bankrupt GMX Resources that has gone from ~$7 to $0.2 and Africa Oil (OTCPK:AOIFF) that has gone from $10.5 to ~$7 since my respective calls. Some of my articles related to all these calls are here, here, here and here.

Four months have passed since the articles about the midstream players were syndicated and it is a good time to check out the performance of my bearish and bullish calls. I will also provide the latest developments along with my updated opinion on these companies.

1) Bullish Calls: After analyzing 45 companies (major, intermediate, small), I was neutral for most of them. I also concluded that only four companies complied with my buying criteria. Finally, I recommended the following firms: Enbridge Energy Partners (NYSE:EEP), Spectra Energy Partners (NYSE:SEP), Spectra Energy (NYSE:SE) and Sunoco Logistics Partners (NYSE:SXL).

Picking only 4 out of 45 companies might sounds strict for some investors, but I feel responsible for my publicly available stock picks. I always try to eliminate the potential risk by rejecting fundamentally weak or overvalued companies, and this is why I did not recommend the remaining 41 companies. My articles with these bullish calls are here, here, here and here.

I picked these 4 companies because:

A) They had above average operating margins.

B) Their debt and cash flow ratios (Debt/EQ, EV/CF, Debt/CF) were lower than their peers'.

C) Technically, the stocks were in a consolidation phase.

After all, let's check out the performance of these stocks at the table below:

Company

Price 1

Price 2

Yield

Enbridge Energy Partners

~$28

~$31.8

~14%

Spectra Energy Partners

~$37

~$46.46

~26%

Spectra Energy

~$30

~$35.59

~19%

Sunoco Logistics Partners

~$64.5

~$64.2

~0

Price 1: Price on the date when the stock was recommended for the first time.

Price 2: Price today.

The total yield of this bullish portfolio is 14.75% currently. In other words, each stock gained 14.75% on average. It is so good to see that this hypothetical portfolio recorded a satisfactory average gain in four months.

2) Bearish Calls: Let's check out now the performance of my bearish calls. The articles with these bearish calls are either above or here, here and here.

Company

Price 1

Price 2

Yield

ONEOK (NYSE:OKE)

~$48.15

~$42.63

~(-12%)

ONEOK Partners (NYSE:OKS)

~$57.25

~$49.88

~(-13%)

Regency Energy Partners (NYSE:RGP)

~$25.55

~$27.4

~7%

NuStar Energy (NYSE:NS)

~$54

~$45.86

~(-15%)

Targa Resources Partners (NYSE:NGLS)

~$46.4

~$53.35

~15%

MarkWest Energy Partners (NYSE:MWE)

~$61.3

~$66.74

~9%

Targa Resources (NYSE:TRGP)

~$68

~$68.49

~0

Energy Transfer Equity (NYSE:ETE)

~$57.8

~$62.43

~8%

Plains All American Pipeline (NYSE:PAA)

~$56.8

~$55

~(-4%)

Williams Companies (NYSE:WMB)

~$38.1

~$33.53

~(-13%)

Price 1: Price on the date when the stock was recommended for the first time.

Price 2: Price today.

The total yield of this bearish portfolio is (-1.8%) currently. In other words, each stock has lost 1.8% on average since my bearish call. So it is pleasant to see that this hypothetical portfolio recorded a small gain in four months. More importantly, none of the two hypothetical portfolios above has lost money but they have preserved the initial capital although the indexes have fluctuated enough during the last four months.

The Updates

I will separate now the fundamental update from the latest corporate news in order to provide a more understandable and complete picture for all the aforementioned companies.

1) Fundamental Update: Let's check out the table below:

Company

P/E

P/BV

EV

-------

EBITDA

(annualized)

EV/CF

LT DEBT

------

CF

Total

DEBT

------

EQ

Annual

Yield

Enbridge Energy Partners

51

2.22

13.88

18.93

7.09

1.9

7%

Spectra Energy Partners

27

2.83

34.17

20.03

3.53

0.64

4.4%

Spectra Energy

25

2.66

15.53

16.35

6.02

2.61

3.5%

Sunoco Logistics Partners

14

1.06

9.51

-

-

0.82

3.6%

EV: Enterprise Value

CF: Cash Flow From Operations (annualized)

EQ: Stockholder Equity

2) Latest Corporate Developments: Let's check out now the latest major news for each of the aforementioned companies excluding the news which have already been presented in my previous articles:

A) In late April, Enbridge Energy Partners announced that the company plans to construct a 150 MMcf/d cryogenic natural gas processing plant in Panola County, Texas. The addition of this plant will expand the Partnership's processing capacity to approximately 820 MMcf/d in the Cotton Valley and Haynesville shale regions. The cost of this plant is estimated at $140 million. The construction is anticipated to begin in late 2013, and will be in-service by early 2015.

In late June, Enbridge Energy Partners announced that it exercised its options to decrease its economic interests in the Lakehead system expansions of both the Eastern Access and Mainline Expansion projects from 40% to 25%. Enbridge Partners expects to receive approximately $100 million from its general partner related to the 15% of the capital it has funded to-date pursuant to these expansion projects. Final phases of the Eastern Access and Mainline Expansion projects are currently targeted for completion in 2016.

Additionally, Enbridge Energy Partners entered into an agreement with a subsidiary of Enbridge (NYSE:ENB) whereby Enbridge will purchase the accounts receivables of certain of EEP's subsidiaries on a monthly basis through 2016 until EEP's large growth capital commitments are permanently funded. It is anticipated that approximately $215 million of receivables will be purchased each month.

B) In March, Spectra Energy announced it closed the acquisition of the Express-Platte Pipeline System, purchasing 100% interest in the 1,717-mile, crude oil system for $1.49 billion. The Express-Platte Pipeline System, which begins in Hardisty, Alberta, and terminates in Wood River, Illinois, includes the Express and Platte crude oil pipelines. The Express pipeline carries crude oil to refining markets in the Rocky Mountain states. The pipeline's capacity is 280,000 bbl/d. The Platte pipeline transports crude oil predominantly from the Bakken and Western Canada to refiners in the Midwest. Platte's capacity ranges from 164,000 bbl/d in Wyoming to 145,000 bbl/d in Illinois. The Express-Platte System is one of three major pipelines moving crude oil from Western Canada to the U.S. The system also serves the Bakken and Niobrara shale oil plays.

In May, Spectra Energy announced an agreement to drop down 50% of the Express-Platte Pipeline System to Spectra Energy Partners for approximately $555 million in cash, approximately $139 million in newly issued partnership units, and approximately $129 million of acquired Express-Platte System debt.

In June, Spectra Energy announced its intention to drop down all of its remaining U.S. Transmission and Storage assets to Spectra Energy Partners by the end of the year.

C) In May, Sunoco Logistics Partners announced that it received enough binding commitments to enable its Mariner South Pipeline to proceed as planned. The Mariner South Pipeline will transport export grade propane and butane from Lone Star NGL LLC's storage and fractionation complex in Mont Belvieu, Texas to Sunoco Logistics' terminal in Nederland, Texas. In addition to export grade propane and butane, the pipeline will be available for other natural gas liquids and petroleum products depending on shipper interest. The pipeline is anticipated to have an initial capacity to transport approximately 200,000 bbl/d and can be scaled to support higher volumes as needed. The pipeline is expected to be operational in the first quarter of 2015. More details and a map of this project are shown in my article here.

My Opinion

I believe that the debt levels of Spectra Energy Partners will rise significantly by year end after the latest acquisitions from Spectra Energy. Spectra Energy's debt ratios are not low either, and they will not drop much despite the recent drop-down agreements with Spectra Energy Partners. SEP's and SE's high operating margins are not enough to make me remain bullish on these stocks.

I do not also like the negative operating cash flow of Sunoco along with its extremely low operating margin. Meanwhile, Enbridge Energy Partners has to reduce its debt ratios and increase its operating cash flow ratios to become attractive again.

In short, I believe that all these four companies are fairly priced currently, and I am not bullish on a particular stock at the current levels. If I had them in my portfolio, I would lock my gains and wait for better opportunities to show up.

Conclusion

In this first part, I discussed only my bullish calls. I plan to analyze my bearish calls in the next two parts of this series, providing also my updated opinion about them.

Disclaimer: Data, facts and premises were determined through review of public documents, SEC filings, news releases, and transcripts. The conclusions are my own. Readers may come to different conclusions using the same information. This analysis is not intended to offer investment advice to buy or sell specific stocks.

Source: Midstream Update: Buy, Sell Or Hold For These 4 Midstream Players? (Part 1)