The Investorplace Media folks have gotten awfully quiet lately — I haven’t seen many over-the-top pitches from Louis Navellier or Hilary Kramer of late, and other big promisers like Robert Hsu and Nancy Zambell have moved on or shut down their letters.
But over the last couple of days I’ve been getting questions about the ad from Bryan Perry for his Cash Machine, an income-focused letter from the same publisher, so all is not lost … we’ve still got big promises from these folks to check out.
Perry starts out by telling us that he’s sharing “My Top Stock for 2013,” which is generally enough to get some attention — this is the time of year, after all, when we all start to dream about the riches that will flow our way next year, when we really get it right. And it sounds like it is, again, a pretty high-yielding stock that he’s teasing:
“… in all my years as an analyst of high-yield securities, I’ve never seen one like this… it not only offers a rock-solid 12.5% yield, but also has explosive capital gains potential.”
So … dunno if I’ll like it, but I definitely want to know what it is. Shall we sniff around the ad for some clues?
He says that he’s hit upon “maybe the most foolproof investment” of his career, and tells us that it’s a “true cash machine,” which is lovely … and notes that it’s at the center of a “revolution” that is going to power the US economy for the next hundred years … so no complaints there, but we need some more detail to narrow down the pick.
And it is, unfortunately, one of those irritating “presentation” ads that doesn’t happen to have a handy dandy transcript available when you try to close the page. So I don’t want to prejudice you as you’re planning what to get me for a Christmas gift, but I sat through at least 20 minutes of this drivel for you.
He says it’s cheap now because of the “Fiscal cliff fiasco” … which doesn’t make it stand out much. How about some more?
So … it’s about to start a winning streak, he believes, that will last all year, it’s going to be the “key player” in its industry, etc. What’s the deal?
Well, not surprisingly, it’s all about energy — this is like many other teases, built on the increasing production of oil and gas in the US, the potential for exporting gas, the death of the coal fired power plant, and cheap
It stands at the junction between natural gas supply and demand … he says it is …
“The indispensable cog in the giant gas wheel that will power the US economy for the next century….
“The largest independent owner and operator of natural gas storage assets in North America ….
“uniquely positioned to profit from the supply demand imbalance….
“it just went public in 2010….
“business is booming ….
“they’ve expanded storage capacity by 20% in 2011 ….
“We don’t have enough gas storage today to deal with anything other than a mild winter season … and there’s no time to build more….
“… revenues up 61% in the last year …. just 130 employees”
OK, so that’s probably enough clues for the Thinkolator … but don’t worry, I sat through the whole thing just to make sure.
He predicts that natural gas could spike because a cold winter could dramatically ramp up gas prices, which would help this company profit — a mild winter could provide 10-20% returns plus the 12.5% dividend … and a severe winter could make the stock double or triple. And he implies the stock will “guarantee” a 12.5% return in 2013 even if gas prices don’t move.
So there’s a high yield, the stock is around $11, barely half it’s IPO price, and it’s a “bargain” according to Perry — what is it?
Thinkolator sez: Niska Gas Storage Partners LLC (NKA)
Which is structured as and acts like a Master Limited Partnership, meaning it distributes the majority of its cash flow to unitholders and that a fair portion of that cash flow ends up being classified as return of capital so you don’t pay taxes on it until you sell and realize that capital gain. As with most MLPs that own long-lived infrastructure assets like pipelines and storage facilities, the depreciation eats up much of the accounting earnings but maintenance eats up far less of the real cash flow.
And the yield is indeed substantial, though it’s not currently growing — they have a stated goal of increasing the payouts over time, but they haven’t done it yet, the dividend has been 35 cents per quarter since they went public early in 2010. The pricing is a match, too — the shares are around $11 now and did go public at a much higher price in the high teens, then shoot past $20 for a brief while … so the effective yield is close to 12.5% now. Niska was a private equity-backed IPO (Carlyle and Riverstone Holdings still own a controlling stake as of the data I’ve seen), and it carries a big chunk of debt.
I haven’t looked at Niska very carefully yet, but they do appear to take pricing risk with at least a chunk of their “proprietary inventory” of gas, so I guess that’s where you find the potential boom from a big spike in natural gas prices, as Perry teases, and it’s also from whence came their inventory writedowns when pricing fell. From a quick glance at their cash flow statements, it does look like they are floating close to the edge of what they can afford with this 12.5% yield — they get their debt pretty cheap and they are expanding capacity so it may be that their revenue will climb, but it doesn’t look like it would take a lot of pain for them to be forced to cut the distribution. Or borrow money to pay it.
So that’s my two-cent look at Bryan Perry’s “Stock of the Year” for 2013 — it certainly rides a compelling trend (storage in high demand) and pays a high dividend, but it looks to me like they also have a lot of leverage and a balance sheet without a lot of “give” in it if things turn bad, which is, I suspect, why investors are demanding the relatively high 12.5% yield and why some analysts have downgraded the stock lately. And yes, many MLPs have been a bit soft with the fiscal cliff looming — perhaps because of fears that their tax advantages will be taken away in any “grand bargain” … though they don’t have to worry about the conventional dividend tax hike that’s already baked in to the law. It’s your money, though, so the important thing is what you think — sound like a worthwhile high-yield speculation for you, or not so much? Let us know what you think with a comment below.