“My Top Stock for 2013” (Bryan Perry)

Sniffing out a pick with a12.5% yield that Perry says has "explosive capital gains potential."

By Travis Johnson, Stock Gumshoe, December 17, 2012

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?

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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.

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December 17, 2012 3:58 pm

A great buy if you specialize in catching falling knives.

December 18, 2012 11:15 am
Reply to  Doc

LOL, the term “catching a falling knife” must have been coined by the banksters to scare the sheeple away from doing exactly what they do. They buy the stocks being dumped by scared investors (that bought too high) in preset increments as it is falling, then they sell it back to the very same price chasers in preset increments as it is going back up. They have been doing this for generations, easy money. Natgas is in the dumps, and could possibly remain there for another 2 or 3 years, maybe longer. This is the time to be accumulating natgas stocks, if you want to build future wealth. If the stock pays some kind of a dividend while it languishes in the dumps, that makes the wait a little easier to take and can buy more low priced shares. These types of opportunities do not come often, and they do not last forever. Start some positions, then add to them on price dips. Or you can wait and price chase them as they are going back up, and do your part in keeping the banksters at the top of the food chain.

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December 18, 2012 5:36 pm
Reply to  OldPoop

I agree, what nat gas stocks do you like

March 16, 2013 10:10 am
Reply to  jax

Sorry, just saw your question today.
GLNG, TGP, and ETP for moving natgas, NKA for storage. LNG for its future potential, and ECA for my one and only gas in the ground company. LNG is my leap of faith stock. I’m hoping that in 2015 when they are up and running as the only export facility in the U.S. they will start paying dividends and become a multi bagger. But I have not bought any for a few months, hoping the price comes back down, it has gotten too popular for me at the moment. The natgas movers have been doing okay while I’ve been accumulating and waiting for natgas to rebound, and they should do even better in the future. I have only one gas in the ground stock because I think that will be the last part of the industry to come back and do well (and I think it will do better than the movers), so it is my longer term long term investment. There is a chance the big payoff could take long enough that it will end up going to my kids/grandkids (I’m 64), but if that ends up happening it’s okay with me, I want to leave them something anyhow. I chose ECA because it has so much land and large amounts of gas in good locations all over North America, just waiting for price and demand to go up to start drilling it. I’m currently just waiting on summer, hoping that it goes back down below $18 so I can accumutlate more at super cheap prices as the price chasers and the impatient sell at a loss. But I’m getting worried that I might not see those prices again and will have to pay $20 or more.

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December 17, 2012 6:11 pm

I bought Niska a couple years ago based on a great story told by one of the financial newsletters I was taking. All that in-demand storage sounded great, but it just went down. Sold it at a moderate loss, glad I didn’t hang on to it.

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December 17, 2012 8:47 pm

Looked a year or so ago. Their storage was about 50% full at that time. The arguement among analyists was , did they have alot of room for expansion , or was usage dropping and the were going to be in trouble. The second opinion looked reasonable and I did not bite.

December 17, 2012 9:24 pm

At least Perry is touting it at a much lower price, than when the bozos at Stransberry were saying it was the greatest thing since sliced bread. Right after that the wheels fell off.