Seeking Alpha
What is your profession? ×
, Pier LLC (43 clicks)
Dividend growth investing, registered investment advisor, macro
Profile| Send Message|
( followers)

I like to use several MLPs when I design an income portfolio. So it makes sense that I would be watching them closely, and in the past six weeks I have been counting some profits because the MLPs have been moving up strongly.

The ones I'm using are Holly Energy Partners (NYSE:HEP), Linn Energy (NASDAQ:LINE), and Energy Transfer Equity (NYSE:ETE). The chart below shows the move up in all three MLPs since the midterm bottom around June 1, 2012.

Click to enlarge images.


The blue line represents Alerian MLP ETF (NYSEARCA:AMLP), the red line represents Energy Transfer Equity, the green line represents Linn Energy, and the orange line represents Holly Energy.

As client funds come in and are put to work I'm always interested in getting a good price for a strong income investment. When I see a short-term chart like this one, I tend to move to the sidelines to do some more research and try to get comfortable with the investments and with entry points. The price of HEP, ETE, and LINE have moved up strongly and have out performed the AMLP.

LINE is a producer, but has a hedge book that is very well covered for the next several years. That much hedging makes me look at LINE like a midstream company, at least for now. Recent acquisitions by ETE and LINE have given investors much to think about. HEP has continued to grow and create larger earnings. HEP has raised its distributions each quarter since distributions started in November 2004.

These are my picks for exposure to this sector, so I need to get good prices for them. Let's look at the Fed U.S. leading indicators chart with the AMLP to keep it simple and easy.


The AMLP is represented by the blue line and the orange line represents the Fed leading indicators.

This looks good, as a break in the Fed leading indicators will lead a move in the MLPs by a few months. This makes sense from a fundamental standpoint as these companies move energy commodities (think pipelines) and offer related services. This is not necessarily correlated with energy prices, as low energy prices can have a negative effect on producer stocks, but can actually stimulate economic activity by lowering all kinds of costs. The first beneficiary of that increased activity are the companies moving the stuff around.

On the chart above showing the Fed leading indicators I'm looking for a second month of increasingly positive data. In that case, I would carefully enter the market for new positions in HEP, ETE, and LINE at current price levels. Flat or lower data points from the Fed leading indicators would have me on the sidelines waiting for a better entry point. New leading indicator data is being released by the Fed this Thursday, July 19, and I'll being watching it closely.

Disclosure: I am long LINE, ETE, HEP.

Disclaimer: Caution is advised in these markets. Investors participating should be prepared to bear loss. This article is for educational purposes only, it is not individual investment advice. Please consult a qualified professional who has specific knowledge of your investment needs and risk tolerance if you need advice.