weiwentg

MLPs in Q2: As Strong as Q1?

I think Avi was more or less on the money - the weaker, more leveraged MLPs may have to cut distributions like XTEX did. KMP's distributable cash flow dipped slightly and is now pretty near their actual distribution, so I wouldn't look for them to raise their payout this year.

However, I think the stronger MLPs, like EPD, ETE, TPP and KMP are good investments. They're all but certain to make it through the credit crisis and pay sustainable distributions. I think the market is waking up to MLPs.

Master Limited Partnerships: An Island of Stability for Dividend Investors

For GPs, my favorite is probably Enterprise GP Holdings (EPE). They hold GP stakes in EPD, ETE and TPP.


On Apr 07 03:28 PM thinking ahead wrote:

> A tip for fellow MLP holders: once cashflows reach certain thresholds,
> amounts diverted to the GP increase. These are called incentive distribution
> rights (IRD's), and they usually top out at tier 3 - 50%, after 15%
> and 25% steps. Most of the more established MLP's have already reached
> the top 50% IDR level (e.g. KMP, ETP, OKS). EPD is an example of
> a MLP that has a lower IDR threshold - 25% maximum.
>
> Once MLP's reach tier 3, the distribution growth typically slows
> - not stops, just slows - because more of the growth is being sent
> to the GP. It's all a way to incentivize the GP to do a good job
> for the MLP unit holders.
>
> One way to take advantage of this is to buy the GP's. But there are
> far fewer available, because these are the most profitable parts
> of the partnership structure and the smart guys like Kinder and Dan
> Duncan and Lowes like to keep the GP slot for themselves. But there
> are some available. One that has reached the 50% IDR limelight is
> ETE. ETE is the GP for well known ETP. If ETE follows the past pattern
> it should start to boost dividends significantly, while ETP grows
> somewhat slower that in the past. I've left some detail out to keep
> this post short, so do your reading. Disclosure: I own both ETP and
> ETE, along with KMP,BWP and EPD.
>

Even Warren Buffett Has 'Issues'

The comment above is a little harsh, but the fact is that none of the downgrades of Berkshire have anything to do with Buffett's investing acumen. He's still good. In Berkshire, he's put together an insurance conglomerate that is still going strong. I don't think his equity investments did markedly worse than the S&P and they're only a portion of Berkshire's holdings.

Berkshire Hathaway: Climate Change Impacts Insurers

Under Obama's budget proposal, most of the funds from permit auctions are rebated to consumers through the making work pay tax credit. Under these circumstances, regulators would be more inclined to allow reasonable rate increases.

If I recall correctly, Berkshire's annual report noted that Midamerican had made significant investments in wind energy. They will raise their rates less than other utilities who have not made alternative energy investments.

Dividend Aristocrats Strike Back

My favorites at this time are Coke and Abbott. I think these two have the best competitive advantages. If you buy a dividend stock which has no or narrow competitive advantages, I think there's a good chance it will cut its dividend.

Buffett's Latest Headache: U.S. Bancorp

I'm not familiar with Bespoke either, but I can't say I'm impressed. They talk only about price without delving into the underlying performance of US Bancorp.

The bank had a rough quarter, but they experienced deposit and loan growth. Their credit metrics didn't deteriorate as fast as their peers. If any one of Warren's major holdings has headaches, it's American Express or Wells Fargo - and even those two have very strong underlying businesses.

Would You Buy Bank of America Common?

Ken Lewis did indeed say that he'd had enough fun with investment banking.

Having the government execute the original TARP plan and buy bad securities seems to be gaining more traction than having the government nationalize the banks. It would also be pretty hard for the government to nationalize all the big US banks. If the government doesn't nationalize, I don't see BoA being worth in the single digits.

That said, I don't have the stones to buy BoA.

What to Buy and Why: Barron's 2009 Roundtable, Part II

As for AMAT, semis are cyclical, but AMAT is probably the best among all the semi stocks. It has larger scale than its competitors as well as an emerging solar business. I think we're around the bottom of the cycle - this is the time to buy AMAT.

As to Abby's pick of BAC common, I have to say that BAC (which I bought around $48) is starting to look like a deep value play. Ken made a blunder with the Merrill acquisition. However, BAC is not as scattered as Citi. Merrill's brokers are a solid asset. The bank has a dominant and stable retail presence in the US. The terms of the last aid package were not onerous. BAC is also too big to nationalize. I would prefer that Ken Lewis step down in atonement for the Merrill fiasco, but I think the bank will survive. $7 a share is not reasonable, either.

Chesapeake: When Gas Prices Will Recover

It does sound to me like Aubrey has a handle on his company's financial situation and his hedge book. However, what worries me is that he seems to assume he can sell assets in every environment. He managed recent large sales to BP and Norsk Hydro in a very difficult environment, but that's not a reason to assume he can keep doing that. Remember what Charles Prince said about how Citi was still dancing?

The comment about Aubrey being a buccaneer really did it for me. The guy is hyper-aggressive. I happen to think he has a high chance of making it big. That said, there's downside risk in that if natural gas gets under, say, $4 for an extended period, I can see a situation in which he drives the company into the ground (meaning it needs a highly dilutive capital injection or files bankruptcy). Sub $4 natural gas is a bit of a doomsday scenario, but you can never tell what commodity prices will do.

Merger Arbitrage: Sound Strategy for a Bear Market

Hey, I got caught in the BCE deal too!!

Kuwait Petroleum Corporation's reconsideration of the K-Dow deal could be bad news for the merger if KPC negotiates a lower price with Dow. That would leave them less cash to complete the deal. I'm assuming that's why the stock dropped Wednesday. Stay tuned...

Merger Arbitrage: Sound Strategy for a Bear Market

Hey, I got caught in the BCE deal too!!

Kuwait Petroleum Corporation's reconsideration of the K-Dow deal could be bad news for the merger if KPC negotiates a lower price with Dow. That would leave them less cash to complete the deal. I'm assuming that's why the stock dropped Wednesday. Stay tuned...

POT: The Commodity Surprise of the Year

I prefer Potash Corp to Mosaic et al because I think potash is less of a commodity than DAP and urea. The supply of potash is constrained and Potash Corp owns a large chunk of the world's supply.

Another potash-related name I like is Compass Minerals, which sells sulphate of potash, a specialty fertilizer for high value crops that are sensitive to regular potash. Compass is mainly a salt play but derives about 1/4 of its revenue from SOP. if potash prices stay high the company is way undervalued. its main salt business is a steady one.

Ford: Have You Driven a Convertible Preferred Lately?

At this point, I can see a scenario where Ford survives but its equity and preferred holders get wiped out in a nationalization. I think this is way too speculative.

I think the convertibles for Chesapeake and Bank of America offer decent values with good downside protection. In BAC's case, though, I'd wait to see how things shake out with Citi - if they're forced to fire sale assets, BAC will be forced to take heavy writedowns on mark to market accounting. They will then have to raise extra capital.

Last Legal Stand in the BCE Privatization Deal

BCE is starting to look like a possibly lucrative arbitrage play. The banks involved seem to have been saying all the right things, and now the suit above was dismissed. The only risks I can remaining are:

For non-Canadian arbitrageurs, there's currency risk. The USD was 1 for 1 to the CAD earlier, but today (11/21), it's CAD$1.29 to the USD. That means that the CAD$42.75 buyout offer is now worth $33 or so. Of course, BCE is trading about $26.50 on the NYSE. Even if the CAD somehow depreciates to $1.50 to the USD, US investors would still get US$28.50.

I'm a bit more worried that the deal might be delayed or renegotiated lower. Starting about 16 minutes into this interview, Mark McQueen of Wellington Financial in Canada believes that the banks will want to renegotiate and that a lower share price will be better for everyone involved (except BCE arbitrageurs). The interview was conducted at the end of October. The banks have been saying all the right things and TD reiterated its commitment in early Nov.

ROH, DOW, BUD:Three Arbitrage Opportunities?

I bought Anheuser instead, which was a fortuitous decision. With Rohm, I'm confident of the financing, but I'm less certain about the closing date. Dow said they expected to close in early 2009. How do you define early? That could be anywhere from January to May.