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Pitbull Trading
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Strongly believe in Nassim Taleb's theories. Have a strong focus on the market psychology and behavioral finance aspect of equity trading. Prefer longer term trades for best risk/reward profiles. Still believe Buy & Hold strategies can be relevant in the current market.
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  • HGT - A Pure Natural Gas Play 1 comment
    Dec 14, 2009 3:18 PM | about stocks: HGT, MVO, MTR, PBT, SBR

     With today's buyout of XTO by Exxon Mobil(NYSE:XOM), my attention has turned to the Natural Gas sector. One of the best pure plays on the future of natural gas as a semi-cure to America's insatiable appetite for energy and vehicles very well could be Hugoton Royalty Trust (NYSE:HGT).

    Description via Google Finance: Hugoton Royalty Trust (the Trust) is an express trust created under the laws of Texas pursuant to the Hugoton Royalty Trust Indenture entered into on December 1, 1998 between XTO Energy Inc., as grantor, and NationsBank, N.A., as trustee. Bank of America, N.A. succeeded NationsBank as the trustee of the Trust. XTO Energy conveyed to the Trust 80% net profits interests in certain natural gas producing working interest properties in Kansas, Oklahoma and Wyoming under three separate conveyances. In exchange for these net profits interest conveyances to the Trust, 40 million units of beneficial interest were issued to XTO Energy. XTO Energy distributed all of its remaining 21.7 million trust units. As of December 31, 2008, XTO Energy is not a unitholder of the trust. The net profits interests entitle the Trust to receive 80% of the net proceeds from the sale of oil and gas from the underlying properties.

    This trust is set up to extract natural gas from its underlying properties, and pay off the majority of the revenues to its trust-holders, as well as set some aside for future wells and maintenance. This is pure play on the spot price of natural gas because each month the distribution is based solely on the volume of gas produced and the price of the gas sold at Henry Hub. With a current yield of around 6% this is a very fairly valued trust with significant upside potential. Not to mention that the law of compounding if you reinvest your distributions you attain monthly, as well as the fact that as natural gas prices rise in the future, so will your distribution. This is the type of selection that you can buy on dips and stash away for years, allowing the income to roll in and knowing exactly what you own; free of possible management flaws, tricky financial engineering, and fraud. The last time I checked this trust also held at least 25 years worth of reserves, so you do not have to worry about them running out of gas anytime soon. I think this is a bargain at current prices, but to be safe it is usually best to buy your position in thirds or fourths, and do so on a down day for your best average price. Other stocks that may be of interest could be SJT, MVO, MTR, PBT, SBR, CRT.

    Disclosure: LONG SJT, MVO, MTR, PBT, SBR

    Stocks: HGT, MVO, MTR, PBT, SBR
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    Rather than operate properties for the benefit of HGT and CRT, why wouldn't Exxon prefer to buy these trusts?
    31 Dec 2009, 03:29 PM Reply Like
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