Author Topic: What are you buying today?  (Read 2195717 times)

shhughes1116

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Re: What are you buying today?
« Reply #840 on: December 02, 2014, 11:45:26 AM »
Added to existing positions in EPD, USAC, and CLMT. 

1. In general, I view EPD as fairly protected against the recent collapse in oil prices (with respect to their focus on all hydrocarbons and their very high distribution coverage);
2. I think USAC has been unfairly pummeled by the market given that it derives 85% of their fees from placing their compression units with midstream natural gas projects (and 15% of their fees are associated with compression units on already-producing crude wells);
3.  CLMT is a specialty refiner that derives most of their EBITDA from Specialty products (lubricants, waxes, solvents).  They have a fairly small business (5%-10%) that sells drilling fluids...that will certainly be impacted, but I think a ~17% share price drop is a bit extreme.  More importantly, they are getting ready to ramp up their refinery in ND, and the lower oil/gas prices should encourage more driving, which will result in a higher demand for their specialty lubricants.   

I have been picking over the carnage in upstream companies, but so far I've avoided putting any money to work in that area.  Maybe I am being overly cautious, but I don't think the bottom is in for those companies yet.  Moreover, if experiences from the late 80's are any indication, it is likely that there will be a fairly long window in which to pick up beaten-down upstream companies before the crude cycle turns up.   


wachtwoord

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Re: What are you buying today?
« Reply #841 on: December 02, 2014, 01:02:30 PM »
I bough HAL, BBL and more SLB.
"Beware of he who would deny you access to information, for in his heart he dreams himself your master"

PatientCheetah

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Re: What are you buying today?
« Reply #842 on: December 02, 2014, 04:24:42 PM »
Do you have more opinion on USAC? How are you weighting it in your portfolio (avg, under, or over)? Thanks!

Added to existing positions in EPD, USAC, and CLMT. 

1. In general, I view EPD as fairly protected against the recent collapse in oil prices (with respect to their focus on all hydrocarbons and their very high distribution coverage);
2. I think USAC has been unfairly pummeled by the market given that it derives 85% of their fees from placing their compression units with midstream natural gas projects (and 15% of their fees are associated with compression units on already-producing crude wells);
3.  CLMT is a specialty refiner that derives most of their EBITDA from Specialty products (lubricants, waxes, solvents).  They have a fairly small business (5%-10%) that sells drilling fluids...that will certainly be impacted, but I think a ~17% share price drop is a bit extreme.  More importantly, they are getting ready to ramp up their refinery in ND, and the lower oil/gas prices should encourage more driving, which will result in a higher demand for their specialty lubricants.   

I have been picking over the carnage in upstream companies, but so far I've avoided putting any money to work in that area.  Maybe I am being overly cautious, but I don't think the bottom is in for those companies yet.  Moreover, if experiences from the late 80's are any indication, it is likely that there will be a fairly long window in which to pick up beaten-down upstream companies before the crude cycle turns up.
risk as little as possible until all the stars have aligned

Longer Term: FB MSFT BABA JD YRD

shhughes1116

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Re: What are you buying today?
« Reply #843 on: December 02, 2014, 06:37:05 PM »
It is just under 6% of my portfolio.  I generally carry about 20-30 positions, so it is currently weighted a bit on the higher end than normal. 

I guess here is the 10-cent version of my thesis:
1.  85% of revenue is fee-based and generated from compression equipment installed in natural gas midstream applications.  This is pretty sticky, and the company states this in their most recent filings.  Think of it this way, you can't move natural gas through a gathering system or through a large natural gas trunk line (i.e. WMB's Transco pipeline) without compression.  These systems are long lasting, and they need compression for the life of the pipeline.   
2.  15% of revenue is fee-based and generated from gas-lift applications for crude wells.  After a well is drilled and completed, the crude output declines over time.  Producers employ secondary techniques (i.e. gas-lift) and tertiary techniques (water flooding) to improve the output of a well.  Assuming oil prices remain low for an extended period of time, the drilling of new wells will likely slow.  However, producers will desire to maintain/enhance output from existing wells by using secondary and tertiary recovery techniques.  Thus I suspect the use of compression units for gas-lift applications in crude wells will not collapse. 
3.  Their recent quarter was the first where they achieved a 1.0x distribution coverage.  During the previous quarters, the distribution coverage has been under 1.0x, but the controlling shareholders agreed to participate in the DRIP program rather than take distributions. 
4.  Their cash flow during the recent quarter was a substantial improvement from the previous quarter.  However it underestimates their true earning power because a substantial amount of new compression equipment had not been deployed for the entire quarter.
5.  They are ordering ~200k in new compression equipment for 2015, all for midstream applications.  The drop in crude should not impact new natural gas pipelines current under construction, thus the market will likely be able to absorb the new compression units. 
6.  Large, addressable market.  Compression can be provided by the producer or midstream operator.  However, many choose to outsource this work, so there is a large market with more opportunity to expand if desired.     
7.  Although USAC could operate profitably by itself, I suspect it would make a good acquisition target for one of the major oil service companies.     

shhughes1116

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Re: What are you buying today?
« Reply #844 on: December 02, 2014, 06:43:57 PM »
Do you have more opinion on USAC? How are you weighting it in your portfolio (avg, under, or over)? Thanks!

In full disclosure, I should also note that my weighting may be a bit misleading.  For reasons I won't expand upon, I am unable to invest in companies that derive more than 10% of their revenues from food, drugs, biologics, medical devices, or tobacco.  Therefore my weighting in oil, oil services, and pipeline companies is likely to be higher than others may find prudent. 

shhughes1116

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Re: What are you buying today?
« Reply #845 on: December 02, 2014, 07:22:11 PM »
For more information about compression, including a good overview of USAC's primary competitor. 

http://finance.yahoo.com/news/overview-natural-gas-compression-companies-181903522.html


PatientCheetah

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Re: What are you buying today?
« Reply #846 on: December 04, 2014, 03:59:15 PM »
For more information about compression, including a good overview of USAC's primary competitor. 

http://finance.yahoo.com/news/overview-natural-gas-compression-companies-181903522.html
shhughes1116 thank you so much for the additional insights!
risk as little as possible until all the stars have aligned

Longer Term: FB MSFT BABA JD YRD

Hawks

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Re: What are you buying today?
« Reply #847 on: December 04, 2014, 05:21:49 PM »
XOM and SU

no_free_lunch

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Re: What are you buying today?
« Reply #848 on: December 07, 2014, 09:21:43 AM »
Verizon.  With a 4.5% dividend yield, I don't even need the stock to do anything other than match inflation and I will do okay.   Seems like a good defensive bet.  Thanks to everyone who commented on the Verizon board.

Lance

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Re: What are you buying today?
« Reply #849 on: December 08, 2014, 07:55:03 AM »
SBRCY (Sberbank)

Thanks,
Lance