Posts tagged “stocks”
Energy Trends Finance
In This Issue
Seadrill Limited (SDRL)
Magellan Midstream Partners LP (MMP): BUY
Global Partners (GLP): BUY
Changes to Previous Recommendation
Seadrill an Offshore Driller in Rapid Growth Mode
Seadrill Limited (SDRL) is currently the largest offshore drilling company in the world by market capitalization of roughly $19 billion (B), and with an enterprise value of $29 B. The company boasts an exceptional dividend yield of 9.0% – a dividend of $3.52/share.
In the 1Q of 2013, SDRL beat market expectations for both revenues and earnings. SDRL, like most of the industry, is in a rapid growth mode seeking to capitalize on the explosive worldwide need for safer, better quality rigs in the post BP Gulf of Mexico oil spill to drill in more difficult and deeper waters – ultra deep to capture higher crude prices.
This week I decided to analyze and recommend an energy company I feel is worthy of investing in. In the coming weeks, as we prepare to launch Energy Trends Finance — a service for investors, executives, and others involved in the energy sector — be sure to look out for similar analyses on companies across the energy industry.
Protect Your Downside
With all the crosscurrents in the markets, Europe in recession, Japan with no economic growth, and the U.S. registering slow GDP growth that keeps energy demand sluggish, and continued high volatility in oil and gas prices, I remain cautious in the energy sector. However, although cautious I am not absent from the market as I do believe that with a diligent and “defensive” investment philosophy one can achieve positive results over the long-term.
(Related: Three Reasons to Invest in Energy Long-Term)
Indeed, as I have outlined in several of my energy trend notes over the last few weeks, I remain bullish long-term in energy equities, as investors will continue to be attracted to energy equities due to long-term structural supply/demand imbalances that will continue to see demand – consumption increasingly outpace production growth.
Invest Defensively for the Long-Term
The key is to pick and choose wisely by not focusing on the overall broader energy market, but to seek out energy stocks that are “infrastructure” related as pipeline MLPs, or niche providers to the energy market as offshore rig providers, deep water drillers and specialty pump and valve flow systems.
In the current market of volatile share price swings, seek out companies with high dividend yields or MLPs with high distribution yields that will protect your downside by providing support to share prices in down turning markets. I’m talking about specialty companies with above average dividend yields, solid balance sheets, low debt, a sound credible and simple business plan, and — most importantly — high growth prospects. And that brings us to our energy investment idea this week: Magellan Midstream Partners LP (NYSE: MMP).
The Big Names in Biofuels
So you’re hoping to strike it rich by investing in LanzaTech. Or Solazyme. Or KiOR. Or Gevo. After all, some of these companies recently had high-profile IPOs, and they are clearly “hot” given all of the press coverage devoted to them. So perhaps you have decided you want to get in on a potentially unique investment opportunity.
I get more e-mails and phone calls about investments than on any other topic. And it’s not just individual investors. I hear from institutional and private equity investors trying to determine what’s true and what’s hype, and asking whether KiOR or LanzaTech might turn out to be the Google (GOOG) or Apple (AAPL) of biofuels. Before offering any guidance, the first thing I try to do is establish your reason for investing. Are you looking for — in the words of former Fidelity Magellan’s Peter Lynch — a “ten bagger?” Are you looking for a hedge against the end of the oil age? Is this money that you are fully prepared to lose?
The second thing I would ask you is whether you really understand the company, their business model, their competition, and their potential technical challenges. (This is typically why people e-mail me — because they have questions about these things). Let me offer an example from my own investing history to demonstrate why these issues are important by telling you about the worst investing mistake I ever made. CONTINUE»