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If you’re an investor, and not on the frontline of the global resource chase, then you’re nowhere. The world has finally arrived at a major tipping point, where the challenge of dwindling resources is being met by innovative new drilling, extraction, refining and alternative technologies. The... More
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  • Must-Own Stocks Of 2013: Two Companies With Explosive Potential

    We're going to look at couple of companies that have underperformed.

    I'm talking about uranium producers Cameco (CCJ) and Denison Mines (DNN). Since we unveiled The 10 Must-Own Energy Stocks of 2013 way back in December, Cameco has edged down a little more than 3%, and Denison is down about 1.5%.

    That's not terrible, but we were expecting more - gains at the very least.

    Here's why…

    A Nuclear Explosion

    If you're a regular O&E reader, you know that we have something of a fetish for two fuels - natural gas and uranium. The reason is simple. The world continuously needs more power, and natural gas and nuclear offer the best combination of efficiency, cleanliness and affordability.

    Alternative sources like wind, solar and geothermal aren't consistent or inexpensive enough to go mainstream. And coal, so long an energy staple, is fast falling out of favor due to its high environmental costs.

    Obviously, nuclear power suffered a setback with the meltdown at Japan's Fukushima Daiichi plant. Active nuclear reactors were taken offline, plans to build new ones were shelved, and uranium prices plunged.

    However, two years after the disaster, the fear associated with nuclear power has begun to recede - just as it did following Chernobyl and Three Mile Island. After knee-jerk reactions and pledges to find alternatives, policymakers have been forced to confront the fact that - despite the risks - nuclear power is their best option.

    That's especially true of China, which has a huge pollution problem and a massive demand for energy. With 17 reactors in operation, another 28 under construction and more than a 100 planned, China is spearheading the nuclear revival.

    It's followed by India, Russia and others.

    Indeed, India has announced plans to grow its nuclear power capacity from 5,000 megawatts to 63,000 megawatts by 2030. Four plants are already being built and 39 are awaiting approval.

    Russia is looking to increase the proportion of electricity it gets from nuclear power from 16% to 25% in that same period of time.

    And while Germany has decided to purge itself of nuclear power, many of its European counterparts - including Great Britain, France and Poland - are plowing ahead.

    Great Britain and France - which already get three-quarters of their power from nuclear plants - recently signed a joint declaration of cooperation on nuclear energy.

    Poland is pushing ahead, too, much to the chagrin of some of its neighbors. Poland's electricity consumption is forecast to grow 54% by 2030. But under the EU's strict climate policy targets, it needs to diversify away from coal, which currently accounts for 92% of the country's electricity. So it's planning on creating at least two plants to provide 15% of the country's power.

    In all, 30 countries worldwide are operating 437 nuclear reactors for electricity generation, and 68 new nuclear plants are under construction in 14 countries. More than a dozen countries get more than 25% of their energy from nuclear today, according to the Nuclear Energy Institute.

    Hence our suspicion that uranium prices and miners would rise…

    So what went wrong?

    Getting Past the Fallout

    Well, in all honesty, nothing. We still believe a rebound is in the making. It's just taking longer than expected.

    Instead of picking itself up off the mat this year, uranium has slumped even further, as restart dates for more than 40 idled Japanese nuclear plants were delayed.

    The yellow metal has fallen to just $34 per pound from more than $70 before the Fukushima crisis and its record high of $150 in 2007.

    Cameco's share price has been halved, as well, tumbling from more than $40 per share before the disaster to less than $20 today. That's about where we recommended it last year, and quite frankly, we still consider it a "Buy."

    Uranium prices will pick back up eventually. It's just going to take some time. And in addition to higher demand, they'll likely get a helping hand from the expiration of the "Megatons for Megawatts" program.

    Under the terms of an agreement signed in 1994, the United States purchased uranium from Russia that was originally intended for nuclear warheads.

    About half of the fuel currently used in U.S. plants is derived from dismantled Soviet warheads, producing about 10% of the country's electricity. But it's running out. About 95% of the fuel targeted under the agreement has been consumed.

    Its extinction will help tighten supplies.

    All things considered, uranium prices should climb back over $50 per pound next year, and back above $70 per pound in 2015.

    So don't be fooled by their flat performance. Relief is on the way for Cameco and Denison.

    And "the chase" continues,

    Jason Simpkins

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: commodities
    Aug 23 8:35 AM | Link | Comment!
  • Must-Own Stocks Of 2013: Why KMI And ETE Are Cash Magnets

    On Tuesday, we caught up with Cheniere Energy (LNG) - a stock that's soared about 50% since we named it one of the Must-Own Energy Stocks of 2013.

    Today, we're going to look at two pipeline companies we recommended -Energy Transfer Equity (ETE) and Kinder Morgan Inc. (KMI).

    We'll start with the high-flying ETE, which is up 42% since our recommendation. That leaves it second only to Cheniere, in terms of performance.

    That's quite a run, but there's still plenty more where that came from, and I'll tell you why…

    Cooking With Gas

    ETE is a pipeline magnet.

    Through its subsidiaries - Energy Transfer Partners LP (ETP) and Sunoco Logistics Partners (SXL) - the company controls 44,000 miles of natural gas pipeline, capable of carrying 30.7 billion cubic feet of gas per day. That's almost half of the average daily U.S. consumption.

    It also owns and operates natural gas storage facilities and sells natural gas to electric utilities, independent power plants, local distribution companies, industrial end-users and other marketing companies.

    ETE owns oil and natural gas liquid assets, as well, but it really benefits as the point man for U.S. natural gas distribution. That's a fine thing to be, considering fracking has unlocked a huge amount of natural gas in the United States.

    Indeed, both natural gas production and consumption hit new all-time highs in 2012. The last time that happened was 1972. And with more power plants switching from coal to natural gas, that trend is likely to continue well into the foreseeable future. In fact, natural gas is so clean, cheap and abundant, it could soon replace gasoline in cars.

    Now, the thing about ETE is that it transports and stores natural gas - it doesn't produce it. So volume is what matters, not the price of natural gas. And with production and demand booming, midstream business is better than ever.


    ETE reported net income of $127 million for the second quarter, up 135% from $54 million last year. Revenue surged to $12.06 billion from $1.88 billion.

    So is it any wonder the stock has cruised steadily higher?

    Furthermore, it yields a respectable 4% and it continues to increase its payout.

    Bottom line: ETE is a dominant player in a fast-growing segment. It's got size, growth and yield. There's really not much more you can ask for.

    And speaking of size, growth and yield, let's turn our attention to KMI.

    Long Live the King

    KMI hasn't had the performance ETE has had, but it's done alright for itself.

    It's up about 8% since our report came out. That's actually a good thing, though, because while ETE has fulfilled most of its upside, there's more room for KMI to grow.

    And grow it will.

    You see, Kinder Morgan is the undisputed king of pipeline companies.

    Commanding 75,000 miles of pipeline, it's the largest midstream energy company in North America - a position that gives the company unrivaled access to the continent's newfound energy bounty.

    Like ETE, KMI has engulfed many competitors.

    Last year, the company made a huge move by acquiring El Paso Pipeline Partners, more than doubling the size of its pipeline network and gaining access to key natural gas development sites. Between that and its general partner interest in Kinder Morgan Energy Partners (KMP), KMI is flush with cash-generating assets.

    The company posted a second-quarter net income of $277 million, compared to a net loss of $126 million a year ago. And revenue came in at $3.38 billion, up 56% from $2.17 billion last year.

    Furthermore, KMI has raised its dividend in each of the past six quarters, most recently to $0.40 per share. KMI stock now yields about 4%.

    And this is a company that had $1.41 billion in cash available to pay dividends at the end of 2012, up 62% from 2011 and far exceeding its published annual budget of $985 million.

    That means more dividend hikes are bound to come - as are higher earnings, and thus, more profits for investors.

    So keep tabs on both ETE and KMI. They're both juggernauts. Their performances this year are far from an aberration. They'll be repeated.

    And "the chase" continues,

    Jason Simpkins

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: commodities
    Aug 23 7:45 AM | Link | Comment!
  • The Pros And Cons Of MLPs – And Three Potential Plays

    One of the most rewarding ways to invest in the oil and gas industry is through master limited partnerships (NYSEARCA:MLPS).

    But not every investor has a thorough understanding of what exactly an MLP is, or how it works.

    So allow me to explain…

    Let There Be MLPs

    Originally approved by Congress back in 1986, MLPs were created as a way to goose the market for domestic energy production by offering some very attractive incentives to the companies, and their investors, to build out our internal energy infrastructure.

    Though interest faded out after the go-go 80s, MLPS are now back on investors' radar. And for good reason.

    In an age of practically zero-percent interest rates- and more Americans worrying about the tax bite taken by the government every April - MLPs are back in fashion.

    See, to spur investment in the energy markets, MLPs get special tax treatment - they pay no income taxes, but in return, they must pass at least 90% of all revenue on to unit holders.

    And MLPs can pay out extraordinary income.

    In fact, of the 83 listed MLPs in the oil and gas market, 14 pay out more than 10%.

    And the top MLPs in the market right now pay out more than 20%.

    Those are some pretty sweet returns.

    And as an investor in an MLP, you get some pretty sweet tax treatment yourself.

    The Taxman Cometh

    Because of the way the laws are structured, the money paid out to investors is considered "return of capital" rather than capital gains. So, until you make back your initial investment, the money you receive from the MLP is tax-free.

    Of course, there are some complications, but for a potential 20% per year, they may be worth it.

    Take tax filing, for instance.

    When you own stock, you're just a shareholder in the company. But with an MLP, you're considered a partner. Therefore, at the end of the year, you'll receive a K-1 tax form, instead of a regular 1099. It's a small inconvenience, but one some would rather avoid.

    Still, if a little extra paperwork doesn't bother you, here are some MLPs to consider…

    Three Moneymaking MLPs

    As I mentioned earlier, you have a number of choices - 83 listed MLPs in the oil and gas sector.

    And those 83 break down into different subcategories - upstream (explorers and producers), midstream (pipelines and transportation) and downstream (refiners and sellers of end product).

    One of the highest-yielding MLPs is CVR Refining LP (CVRR) - a refiner that yields a sweet 20.53%.

    Based in Sugar Land, Texas, CVRR owns and operates a 115,000-barrel-per-day (bpd) refinery in Coffeyville, Kansas and a 70,000-bpd refinery in Wynnewood, Oklahoma.

    It also controls and operates supporting infrastructure, including approximately 350 miles of pipeline, over 125 crude oil transports, a network of strategically located gathering tank farms, and over six million barrels of owned and leased storage capacity.

    CVRR was spun off of CVR Energy (CVI) to handle its refinery and storage operations. So it's relatively new to the market, having listed in January of this year.

    You might also look at Eagle Rock Energy Partners (EROC), which pays out an enviable 13.8% yield.

    Eagle Rock specializes in the gathering, compressing, treating, processing, and transporting of natural gas and natural gas liquids.

    It also trades natural gas on the open market and develops interests in producing oil and gas properties.

    And finally, there's Kinder Morgan Energy Partners LP (KMP) - a household name in the energy markets.

    KMP concentrates its operations in five different business segments: oil products pipelines, natural gas pipelines, carbon dioxide, storage terminals and Kinder Morgan Canada.

    The company has also been active in accumulating additional assets, including the Tennessee Gas Pipeline and a 50% interest in the El Paso Natural Gas Pipeline.

    Though shares have been trading flat for the past 52 weeks, KMP sports a decent yield of almost 7%.

    So, there are three energy MLPs to consider for your portfolio. Each has a different specialty, and each comes with some nice returns and tax advantages.

    Of course, there's a simpler way to gain exposure to the MLP market…

    But you have to be careful how you play it.

    We'll discuss the possibilities in my next article.

    And "the chase" continues,

    Tim Diering

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: MLPS, commodities
    Aug 23 7:43 AM | Link | Comment!
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