Tom's Life Bits

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==== Re: MLP month to date and P/E Stats 9-18 ====

Month to date - what's up [Doc]?
 
The distribution cutting APL, EROC, XTEX, and USS - along with a handfull of G&P MLPs - that is what's up. And since I own a handfull of G&Ps, this course of events has been fine with me. But most of you are not in that camp. What does the future hold for you - the holders of EEP, EPD, ETP, KMP, MMP, NS etc.???
 
From Ben Levisohn, writer for Business Weeks 9-16:
 
     The stock market has gained 58% since its bear-market low Mar. 9, but the rally hasn't lifted all equities equally. As is typical in many market bounce-backs, the worst recovered first. Low-quality companies, those with weak or nonexistent profits, mediocre return on equity, and less-than-stellar balance sheets, outpaced their more solidly profitable peers by nearly a 2-to-1 margin, according to research from Baird Private Wealth Management.

Baird found that companies not earning a profit gained 92% from the Mar. 9 lows through the end of August, compared with a 47% rise for companies that had the highest profit margins. Companies with the lowest return on equity outperformed those with the highest by more than 2 to 1, according to Baird.

But the data also show that this kind of low-quality rally is perfectly normal — and usually short-lived. For one thing, the profit-deficient companies suffered bigger price declines during the worst of the stock market tumult. The companies that were hit the hardest rally the most when it becomes clear they're not going away, but as the market normalizes, the rally will end. "Once this initial burst comes through, high quality emerges," says Aaron S. Reynolds, senior portfolio analyst at Baird.

----------- end of quote from Business Week -------
 
     If this is true for the stock market in general, then will it be true for the MLPs? 
 
    My guess - the same effects going on in the general market is what is pushing up last years under-achievers in the MLPs. APL has been priced as if it is going out of business. It is still priced as if it could go out of business. And it may. But I can see the odds of APL going out of business have been going down - thus its price has been going up. But the 'it is NOT going out of business' kind of gains are probably not sustainable.
 
   Are the gains for the G&P sustainable? That is a different story - to me - a guy who has drunk the G&P Kool-Aide and thus is probably a bad source of advice. But two of the BIG stories in the sector are the Marcellus [which is the  MWE story], and the Haynesville [which is the RGNC story - which ETP may share in the future] .A fairly big story in the Eagle Ford shale - a story that Copano may be able to tell - shortly. But EPD is working that story too. 
 
    This is a very complex sector - and when a stock can have a one word reason to buy it [like: Why own MWE? Answer: Marcellus] then those kind of stocks can continue to gain ground.And it should be easier for them to gain ground starting at such high yields.
 
  Bottom line - go with my 'old' advice - and make 'portfolio decisions'. Build a portfolio that is mostly weighted toward the midstream large caps. There are a lot of good stocks in this sector. But if you are over weighted in G&Ps - then you are taking too much risk. And if you are totally ignroing the G&Ps, you will take some potential big gains out of your portfolio.
 
    I began this message wanting to share the good news for the large cap midstream MLP owners [of which I am one - yet I am not 'weighted' that way], market history says your/our day is going to come. And with yields spreads still high and absolute yields much higher than historical norms - that stats would indicate there are sizeable gains [20% gains?] for us to be had in 2009 just by sitting and doing nothing. "Sitting and doing nothing" was a vey hard thing to do in 2008. Year to date - and for the rest of 2009 - I am projecting that such a task will be easier.
 
Bob a.k.a. Factoids

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