You may well have heard of Elliott Gue — he’s a pretty widely-read pundit on energy investment, which has, of course, been one of the hottest sectors of the last five years. He works on the venerable Personal Finance newsletter and also edits his own Energy Strategist, which I’ve written about a few times in the past year or so.
Today he’s not selling a subscription to his newsletter, but something even more ephemeral: he’s selling an “interactive investors event” during which, for $99, he’ll share some energy investing ideas for you.
Regardless of what you’re asked to buy, however, the selling technique is the same — he “teases” you with three great investment ideas, giving just enough facts to get your blood running, but not the name, or enough for it to be easily figured out.
Which is, of course, why you’re here — your friendly neighborhood Stock Gumshoe will take the Thinkolator out of the garage, fire it up, and see if we can spit out some answers to these little teasers …
Gue goes through a long list of what he’s going to cover in his online lecture, which pretty much includes every possible energy bull market:
“how to hedge against falling oil prices
“which companies are leading the boom in exports of U.S. coal
“the “hidden” bull market in drilling and infrastructure companies
“the long-term and short-term effects of speculation in oil prices
“how “unconventional” oil and gas reserves can make you rich (investors who followed Elliott in these choices pocketed gains of 118% this year already!)”
Nothing shocking in any of that — you can hedge against falling oil prices by buying big oil consumers, like the transports, or by buying puts on the various oil indexes, or buying the inverse ETF for the energy sector (DUG) — be careful, this is a very broad sector inverse ETF, it doesn’t move directly against oil prices.
The companies leading the booming coal export business are probably the biggest coal companies, and the biggest exporters. Peabody Coal is the biggest coal company and exports a fairly large amount of it recently, CONSOL Energy exports more US coal than anyone else.
I don’t imagine the bull market in drilling and infrastructure is really “hidden”, but even the best of these companies have taken big hits in recent months — generally what folks mean when they talk about the bull market is that the best companies, with the best products, continue to see ridiculously high demand — that includes the horizontal drilling rigs from Helmerich and Payne, probably, and the deepwater driling rigs from most of the big offshore driling companies.
And the unconventional oil and gas reserves are probably mostly shale gas plays these days, with the bakken, fayetteville, and marcelllus shale formations probably getting the most attention … and you can throw in the coal bed methane if you like, too, which CONSOL Energy is also involved in, or the tar sands projects up North.
And it’s only going to be an hour and a half, so I’m not sure how much wisdom he can possibly impart during that brief time (though I imagine there’s a strong possibility that he’ll also try to sell you a subscription while you’re listening). He does, however, also tease three specific companies that he thinks are good investments. What are they?
The clues, please!
“Red-Hot Pick #1: Did you ever wish you could get in on something BIG ahead of everybody else? Then this is the opportunity for you. This company is one of the largest gas producers in the country. But it’s sitting on a bigger secret: it’s also on the verge of building the first EVER liquefied natural gas export terminal in the United States. When the news breaks, this company will take off like a rocket with HUGE profit potential — but YOU can strap yourself in now BEFORE the rest of the world finds out.”
That, in all likelihood is Chesapeake Energy (CHK). CEO Aubrey McCLendon mentioned during a recent call that he was exploring ways to export liquefied natural gas (LNG), though of course this would not be the FIRST US LNG facility, that honor falls to the terminal in Kenai, Alaska that has been exporting LNG to Japan for close to forty years.
I do like Chesapeake, in part because it’s a leading gas producer and a company with very smart financial management, and in part because McClendon has been so incredibly aggressive in putting his own money into the company — he is almost always on the list of biggest insider buyers. You may have seem him recently, too, since he has a new ad piggybacking on the “Pickens Plan” to convert the transportation fleet to natural gas (obviously, that would be a positive for a natural gas company).
The LNG Export thing, however, is a bit of a stretch. The Kenai, Alaska terminal has to get re-approved every few years for export, and the US government has generally been opposed to any significant export of natural gas. You can see why companies want to do it, since natural gas is much more expensive in Asia and Europe than it is here at home, but that is the same reason that the government has an interest in making sure it doesn’t happen. We have LNG import terminals in several places around the country, but they’re not all that busy in many cases because the prices being paid in Korea, Japan, and Western Europe are diverting LNG supplies to the higher paying customers. Theoretically, many of those terminals could be converted to export, but politically it’s not very popular.
So whats next?
“Red-Hot Pick #2: Investing in this next company today would be like investing in ExxonMobil 20 years ago — and that’s no hype. Since March 2007, the price has soared a whopping 141% — more than DOUBLING. No wonder the CEO, Floyd Wilson, loaded up on it. And its glory days are still ahead: with higher than average growth expected, investors could see gains of 10 to 1 over the next five years. This is the kind of stock you’ll tell your grandchildren about.”
Well, thankfully they gave us the CEO’s name there, so this one is easy peasy — Floyd Wilson is the CEO of Petrohawk energy, a company that I’ve heard of but know almost nothing about. They’re about a $4 billion company that drills for oil and gas mostly in the US energy heartland — Texas, Louisiana, Oklahoma. As I said, I don’t know much about them, but a quick look at their numbers paints the picture of a company that’s fairly levered to high energy prices — they have a pretty large slug of debt (about $2 billion), and they announced today that they’re cutting back on their capital budget and they’re going to sell some assets. They’re moving their investment focus to the Haynesville and Fayetteville shale areas, so they’ll probably be quite levered to natural gas going forward.
“Red-Hot Pick #3: When this oil and gas producer reports its earnings this coming October, the gains will be huge. It’s no wonder. This “independent” is a darling of energy investors because it offers a DOUBLE goodie: it pays a hefty 12% dividend AND gives a tidy tax break because of its unique business structure. Perfect for those who want tax-deferred secure income.”
So … unfortunately, I can’t tell you exactly which one this is. From the “tidy tax break” and the high dividend I assume that this is one of the few oil and gas exporters that operates as a Master Limited Partnership (MLP). Most MLPs are in processing and transporting businesses, primarily in oil and gas pipelines, so the actual producers do stand out. If it’s an oil and gas producing MLP that has a yield of about 12%, in all likelihood he’s talking about either Legacy Reserves LP (LGCY) in the Permian and Anadarko basins, or Encore Energy Partners (ENP) in Montana, Wyoming, and West Texas. There are a half dozen more similar MLPs, including Dorchester Minerals (DMLP), EV Partners (EVEP), and a few that are slightly different business structures, notably the LLCs Linn Energy (LINE) or Constellation Energy Partners (CEP), both of which yield quite a bit more than the average MLP (up to 16-20%).
So … a few more ideas for you to dig into if you’re looking for more energy investment strategies — I currently own shares of a deepwater oil driller, but do not own shares of any company mentioned above. Let us know if you’ve got a better idea …