Futures are higher as China Exports Accelerate With Credit in Recovery Boost: Economy (Bloomberg). A re-acceleration of Chinese growth is what everyone has been waiting for…
Investment risks and cycles by Howard Marks. We remain cognizant of the risks and imbalances but are much more constructive.
After all, Transports Closing in on All-Time High (Bespoke) and while small caps are strong (All-Star Charts).
Meanwhile in natural gas land, the latest NOAA 8-14 Day outlook was just released, and the Eastern Seaboard has now changed from above average temperatures to below average outlook:
Don’t get too excited, the unhedged and under-hedged producers face a Henry Hub price under $3.15…
On Tuesday a link to a commentary on Natural Resource Partners (NRP) was posted. The question was asked ‘What do you think about NRP’? First, remember Independent Stock Analysis shall not become promotional. Members are big boys who make their own decisions. Second, ISA regularly warns against chasing yield.
ISA first noted NRP as an investment idea eight months ago here. And a search (the little box in the upper right hand of your screen) brings the reader to every post which has seen NRP mentioned here.
I don’t have much to add, so I’ll regurgitate: I think the distribution is safe, though it does not look to climb in a depressed coal environment. Investments which have been made over the past number of years in aggregates (housing) and oil & gas should look to provide benefit is coming years. The company will continue down this path. A coal rebound, met or thermal, would be a nice kicker. And the company is composed of ‘hard assets’.
I do not believe my friend Tom’s concerns about NRP being a MLP relates to his father’s bad experience as this is a different animal. Debt is less than three times free cash flow and NRP is not dependent upon capital market financing. The interested investor ought to read the earnings releases and watch a presentation to judge for yourself. “We all bet our money and take our own chances.”
Thanks for the info JJ. And yes, I take full responsibility for all of my investing decisions – both the good and the bad. I used to have financial advisers but got tired of them losing money for me so I decided that if I were going to lose money, it was going to be my own fault. 🙂 But I still read and listen a lot. I have been hearing and reading a lot more about MLPs lately as more and more people are going for yield, but I just have never learned how to read their balance sheets and value them. They are a different animal from the equities that I normally follow. And I know that there are different types of MLPs. One that BEB is promoting on the BRY board is ALDW. I read somewhere that ALDW is a hybred MLP — whatever it is. And ALDW sounds too good to be true — and I have been down that road too many times – but maybe it is true. But I need to know how to figure it out rather than depending on BEB. Or take another on that many seem to like – Linn Energy (LINE). Sure, the yield numbers are great (~8%), but most of the other numbers, e.g. Total Debt (6.8B), Total Debt / Equity (191%), Long Term Debt / Equity (143%) Levered Free Cash Flow (-258M), Profit margin (-25%) keep me from buying it, so I figure that I must be missing something bigtime. I understand that the numbers for MLPs are totally different than equities, but I still want to understand them and in particular to know that the yield is safe and the MLP will be around for the long haul. Sorry to be so long winded. Maybe I should just stick to GG, GDX, SLW, AUY, ESV, SU, TCK, MOS, POT… 🙂 At least today was a good day for me in that regards.
In my opinion, the key idea for the individual investor is to ‘understand’. Everyone has a different backgrounds and experiences. Warren Buffet calls it your ‘circle of competence’.
Tom
Take a look at FGP. Has payed dividends for many years. It’s worth a look.
Thanks John. I will. Re: JJ’s quote of Buffet about one’s “circle of competence”, that is exactly what I was thinking about this a.m. I had guessed that JJ would say something like that and it is great advice – advice that I regret not following too many times in the past. MLPs as I understand it are based on their underlying assets which generate cash flow. One cannot just look at the cash flow as the underlying assets depreciate. As a bit of an analogy, I think of it like cash flow from a rental unit. The cash flow might look good, but one had better understand the value the rental unit itself. I will continue to look at some MLPs and try to learn, but at this point they are beyond my “circle of competence”.
Hi again John, I looked at FGP in my Fidelity research site and it just shows again that I do not understand MLPs. The numbers make my head spin; they make no sense to me. The good numbers that I saw were the dividend and the insider holdings. But the rest of the numbers make me wonder how in the world they will be able to continue paying their dividend. Much more learning to do if I am going to get involved in this sector. Thanks again.
Tom
Looking at the balance sheet is just part of the equation. The business model, company history, management, etc. are very important as well. FGP is in the propane distribution business which buys gas at wholesale and sells it retail. They are in all 50 states and are 2nd largest distributor of the gas nationwide. If you heat with propane or cook on the grille (Blue Rhino which they own) you have probably bought their product. This is not an endorsement of the company, just something for you to look at.
I am quite familiar with FGP as I live in rural MI and see their trucks drive by. And I know that their product is very much needed, esp. in the winter. Also, FWIW, a major competitor of theirs in my area is very much disliked by many. But I will have to read their prospectus etc. to gain more understanding of their financial structure. Best wishes.