There are several different teaser pitches going around these days that profess not only to know how the election will turn out, but which specific investments will be immediately profitable as a result.
Which is a pretty hefty dose of tea leaf reading, if you ask me — we’ve got a dead heat election, a ridiculous Congress, a “fiscal cliff,” and a global economy that most people seem to think is rolling back over into recession … which means I have no flippin’ idea what’s going to happen.
But Mark Skousen, for one, says he’s got your plan — with the salient part of that plan being his “six investments you need to make before the election.”
Which will, he says, roll to Romney. Because, well, he gives a bunch of reasons but it comes down to “I have a hunch.” Here’s how he puts it:
“I believe there are huge numbers of loyal Obama fans who love and admire the guy, who say they will vote for him, but won’t when they get in the booth!
“I mean, who wouldn’t want our first black president to succeed? Especially one so charismatic, with such an idyllic family, one so earnest in his hopes for a better America? It’s tough to admit disappointment and disillusionment when you just plain like someone.
“But I am now convinced there’s a huge upset in the making.
“Obama fans are quietly, perhaps secretly, coming to grips with the fact that while they still admire and like Mr. Obama, he just hasn’t gotten it done.
“And there’s so much pain, and so much unemployment, that these tens of thousands of adoring Obama supporters are surreptitiously planning to either sit out the election, or to vote for Romney!
“And that is why I’m predicting…
“A Romney Upset in November!”
I’m sure all of you can bicker back and forth in the comments section about whether you think Skousen is right — feel free, but that’s not my bag and for the next two weeks we’re all just guessing.
So what I’ll try to do is sniff out the investments Skousen’s recommending as plays on this “Romney upset” and what he thinks will be a repeat of the “Reagan-era boom” … let’s get right to the spiel:
“A Romney victory is going to make Wall Street traders euphoric! The market is gonna go absolutely bananas!
“You could see the Dow explode by 500 points on November 7th. By year’s end I expect we’ll see the Dow closing in on 15,000!
“Regardless of whether or not a President Romney can produce the kind of miracle turn-around needed to ‘pull the economic fat from the fire’ short term, you’re going to see Wall Street take a huge sigh of relief as billions in side-lined money comes gushing back into the market….
“When the Romney victory blows the lid off of Wall Street, certain stocks are going to double… Triple… Even quadruple the performance of the surging S&P, Nasdaq, and Dow!”
He starts off with two picks in the energy space that he thinks would immediately benefit from Romney, a pipeline company and a driller. Here are the clues for the first:
“BUY #1 — The Dividend Pipeline!
“This Houston-based, NYSE company is in the pipeline business, and it’s been pumping out the dividends…it’s the largest publicly traded master limited partnership (MLP) in the U.S., and operates a diversified business portfolio that encompasses natural gas pipelines, offshore production platforms, tank barges, and oil pipelines.
“In May, the company reported first-quarter 2012 earnings of $656 million and earnings per share (EPS) of 73 cents, compared to earnings of $435 million and EPS of 49 cents for the first quarter of 2011.”
And this one is apparently quite levered to natural gas liquids (NGLs), as we’ve heard teased about several midstream companies in the past:
“Roughly half the MLP’s gross operating margin stems from pipelines and services related to natural gas liquids (NGL) such as propane, ethane, and butane. This business segment includes 25 natural gas processing plants, 21 NGL fractionators, NGL pipelines and storage tanks, and NGL shipping terminals on the Gulf Coast. This segment is the company’s most vital source of cash flow — and its greatest engine of potential growth.
“One of the company’s key organic expansion projects involves the construction of NGL infrastructure in the eagle ford shale, including 300 miles of natural gas pipelines, a processing plant with a capacity of 600 million cubic feet of natural gas per day, two major NGL pipelines, a new crude oil terminal in Houston, and a fractionation facility in Mont Belvieu, Texas, a key hub for NGLs.”
Well, we’ll give them a pass on the fact that they plagiarized most of that from a piece by John Persinos that got distributed in a few places (Persinos works for Investing Daily, a competing publisher), since maybe they asked permission, but this is clearly Enterprise Products Partners (EPD). That Persinos note is here, just FYI.
And yes, they are big in natural gas and NGLs, they’re huge, and they pay a nice dividend (though since they’re among the larger and more stable MLPs, the dividend is on the low side … just under 5%). They also, since they’re so gigantic (market cap near $50 billion now), need a lot of action to move the needle, so their exposure to the Eagle Ford Shale, for example, is not going to quickly double their cash flow even if production grows quicker than expected in that area, but a little stability isn’t necessarily a bad thing. I’ll be quite surprised if it makes any real difference who wins the election when it comes to MLPs or specifically to EPD, but they are certainly investor favorites these days and EPD has been a better-than-average MLP over the past year. Often when the largest company is also one of the best performers, it’s a bit silly to stretch to find smaller companies that might carry more risk — I don’t know whether EPD will continue to do better than the average MLP going forward (as represented by the Alerian MLP ETF, ticker AMLP), but it probably won’t do much worse.
“BUY #2 – Drill Baby, Drill!
“Another change I think we can count on will be an end to the Obama ban on offshore drilling.
“And the company that I believe will benefit the most is a Bermuda-based company active in the oil and gas industry. The company operates a fleet of 60 units comprised of drill-ships, jack-up rigs, semi-submersible rigs, and tender rigs for operations in shallow to ultra-deep water areas. The company’s customers are national, international, and independent oil companies.
“Even if Obama should win, this offshore oil drilling outfit is a buy because it just paid out a whopping 97-cent quarterly dividend. Looking back over the past four dividends, the annual dividend yield now is 7.3%. It could be substantially higher if it pays out more than 97 cents per quarter into 2013.”
Well, this particular little hint wasn’t lifted directly from anyone … but this is a company we know well in these parts, so I can tell you that here he’s teasing leading deepwater driller Seadrill (SDRL), which is indeed a high-yielding juggernaut. The teaser ad is probably a bit on the aged side, though, because their 97 cent per share dividend was way back in May and included a special dividend — their normal distribution rate is currently 84 cents per share per quarter and is likely, since they’re very dividend focused, to grow.
I’ve written a lot about Seadrill over the years — it’s been a relatively risky deepwater driller, because they borrow a lot of money to build their rigs, order rigs on spec with the expectation that rates will remain high or rise, use various financial engineering techniques like sale/leasebacks, spinoffs to increase cash flow, and pay out a massive amount of their cash flow as dividends. The current yield is about 8%, and though the stock will very likely drop a bit when oil has bad days I still like it quite a bit and it’s one of my larger holdings. They take more risks than the more cautious US drillers like Diamond Offshore, but that has let them grow far more quickly and build a far more modern fleet that generates huge amounts of cash. If you think, as I do, that deepwater drilling will continue to be a growth industry, then Seadrill ought to do extremely well.
They recently (really recently, on Friday) spun off shares of some of their rigs to a new MLP, Seadrill Partners (SDLP), in a deal that seems great for the parent — the MLP actually yields less than Seadrill and has far less upside, and it gives them a captive entity to which they can sell their rigs that are under long term contracts, thereby generating yet more cash, and they retain control. Which looks to me like yet another example of John Fredriksen, their founder and major shareholder, taking advantage of all angles possible to maximize the value of his company’s assets in the public markets. It will probably be a bumpy ride, but I’m holding on.
Next idea from Skousen?
“BUY #3 — The Return of the Entrepreneur.
“One of the criticisms of the Obama administration’s era of big government and over-regulation has been its stifling effect on venture capital and new-business start-ups.
“A business-friendly Romney administration should act as a booster rocket for this fast-growing, Houston-based venture capital fund. This pick is a principal investment firm that provides long-term debt and equity capital to lower-middle market companies and debt capital to middle market companies. Its portfolio investments are typically made to support management buyouts, recapitalizations, growth financings, re-financings, and acquisitions of companies that operate in diverse industry sectors.
“The company reported first quarter income at $20.6 million, a 54% increase, and announced it would pay a 14-cent dividend in May.”
Well, I can’t say that I know this company at all — but the Thinkolator tells us that it is Main Street Capital (MAIN), which h as actually raised the dividend a bit since may and now pays 15 cents per share … this is one of the rare US companies that pays monthly dividends, so that’s an annual payout of $1.80 for a yield of a bit over 6%. They are a Business Development Company (BDC), another popular yield-oriented pass-through investment somewhat similar to REITs or MLPs — like most BDCs, they lend to small and medium sized businesses and don’t pay federal taxes, passing through the lion’s share of their income to shareholders in the form of dividends (which are taxed as regular income for you). The stock has done very well this year, and they’re pretty diversified, but that’s about all I know about them.
Like most BDCs, they would generally be expected to be quite economically sensitive: Typically the borrowers for these kinds of BDCs are mid-sized service and industrial companies that tend to be economically sensitive, so when crises hit (like 2008) a lot of them have trouble paying back their loans, though after the BDCs lived through portfolio disasters in 2009 I suspect they’re probably all being a big tighter with the lending standards or otherwise more cautious now. If you know MAIN or their prospects, feel free to shout out your opinion with a comment below.
OK, so the first few of his picks are all decidedly income-focused, with yields running from 5-8% — which has definitely been the kind of investment that I know many folks have flocked to this year. I have to cut it off there for at least a few hours — sorry to promise you six ideas in the headline and only deliver three, but I will get to the other three as soon as possible. Or if you want to discuss them amongst yourselves, feel free, the ad is here.