There was a lot of interest in the “Top Ten Forever Stocks” that Paul Tracy was pitching last year, partly because people love the idea of a “buy and hold forever” pick that will perform for them just like their grandmother’s 100 shares of IBM from 1962 that bought her a nice condo in Florida last year … and partly because, well, as we can see from perusing just about any group of investing articles, people are suckers for any article that has numbers in the title (check out Seeking Alpha, for example, every other article is “four picks for the Bakken,” “top five internet infrastructure ideas,” “seven dividend dynamos to consider,” etc. etc.)
And Tracy has repurposed and revised that list a bit to call it the “Top Ten Stocks for 2012”, with a strong tease that it includes a stock Buffett recently bought that is the “biggest ‘no brainer’ investment for 2012” … so I thought we’d take a look and see whether this list of their teased “top for 2012” picks is similar to the “top forever stocks,” and what new picks they might be pitching for this particular year.
Ready? No, it’s OK, I’ll wait. OK? Great.
I’ll blow the lead here right in the beginning: the one they’re touting as “Buffett’s ‘No-Brainer’
Investment for 2012” is eventually disclosed if you sit through their marketing presentation — that one is Intel (INTC). And so far it’s sure been a no brainer for this year, it’s up about $2 per share so far in the first month of 2012 and it’s in that sweet spot of megacap/growing dividend that investors seem to be lapping up in recent months. I also own shares of INTC and am quite happy with them, and Intel was also on Tracy’s “forever stock” list — but it’s almost certainly not a Warren Buffett buy.
Berkshire Hathaway did disclose a position in Intel in the third quarter last year, but it’s too small a position to be something that Warren himself bought — Warren did apparently personally choose jump in and buy IBM, a $10 billion investment Berkshire made last year, since he’s said he’s focused on the big acquisitions and Berkshire’s large holdings of a few favorite equities, but the Intel buy was less than $200 million and therefore was almost certainly made by Todd Combs without Warren’s input (he manages about $3 billion and doesn’t have to ask Buffett’s permission).
Not that there’s anything wrong with a Todd Combs pick — his additions to the Berkshire portfolio did very well last year (like Mastercard and Dollar General).
So that’s the one that they reveal as part of their tease for the special report — much as they “revealed” Google (GOOG) and Brookfield Infrastructure Properties (BIP) in their tease of “forever” stocks last year.
And yes, they do reveal a second one in this iteration, too — a pick that wasn’t on their “forever” list last year, Sandridge Mississippian Trust (SDT), a royalty trust that Sandridge used (along with another one, Sandridge Permian Trust (PER)) as part of a restructuring they’ve been working on over the last couple years, cleaning up an overleveraged balance sheet and moving away from natural gas and toward oil as much as they can (Sandridge was founded by the co-founder of Chesapeake and started off, much like CHK, borrowing lots of money and buying natural gas assets in the mid-2000s). All of these royalty trusts are interesting, and Sandridge is also launching another trust shortly that will have similar terms and assets and be tied to another portion of their Mississippi holdings — you can see the basic rundown of the three trusts in this Motley Fool article if you’re interested. All three of t these trusts have honking big yields, not sure what the depletion rate is or what their expected life will be, and I haven’t looked into the trust details.
But what are the “top secret” picks that they won’t reveal?
“Top 10 Stock #3 owns oil pipelines and terminals across the United States. That sounds like a “boring” business, but this company just saw its quarterly profit rise to a new record… and 67% above one year ago….
“That’s great news for its investors, because this company returns every penny it can to shareholders. Since going public in 2001, stock #3 has raised its dividends 205%… and now pays $3.20 per share in dividends every year. Meanwhile, over the past five years, the shares have delivered total returns of 129%.”
This one wasn’t on that original “hold forever” list, but it must be Magellan Midstream Partners (MMP), a master limited partnership (MLP) that did have an indicated distribution of $3.20/year until they raised it again just a few days ago (they’ve actually raised the distribution almost every single quarter of their existence, with the exception of the four or five quarters following the financial crisis, when they kept it flat).
Like most big MLPs, MMP has been on a tear lately (almost all of the large pipeline operators trade in perfect sympathy with each other almost all the time — unless one of them has an accident or an acquisition or similar surprise) and now yields about 5% with the shares just under $68, so they’re pretty much average for the “big diversified MLP” segment. Their major assets are in a big product pipeline system covering a big swath of the central US, from Texas up to the Dakotas, but they also own ammonia pipelines and a number of land and marine terminals, and they’ve been pretty flexible in the past (switching over pipes from crude oil to refined products and vice versa as needed, for example).
MMP seems to have much higher earnings reported than some of the other large pipeline operators, so it might be that more of the distribution is taxable, but I haven’t looked into that at all — most MLPs distribute a lot of “return of capital” since the actual taxable earnings, after they account for massive depreciation charges on their long-lived assets, are almost always far lower than the amount of cash they have available to distribute to unitholders, but I was a little surprised to see that MMP had actual accounting earnings for 2011 that more than covered their distribution. There might be anomalous reasons for that, it’s just something that caught my eye on a quick glance. FYI, though this one wasn’t on the StreetAuthority “hold forever” list last Summer, the ETN that tracks a basket of similar MLPs was — that’s the JPMorgan Alerian MLP Index ETN (AMJ).
“Top 10 Stock #4 is one of Brazil’s largest electricity generators… but you don’t have to go to Brazil to buy the shares. They trade right here in the U.S.
I think of this stock as the “safe” way to play Brazil. The country is seeing massive growth… and that can lead to volatility. But by investing in one of the nation’s biggest electric providers, we have a way to participate in the upside of a growing country without the swings seen in many emerging market investments. Of course, the fact that the stock pays a dividend yield of 9.0% only adds to this company’s appeal.”
I don’t know where he’s looking to find a 9% yield in Brazilian electric utilities — the one he teased last time around, CPFL Energia (CPL) has a trailing yield of just under 6%, and the other big ones are similar (EBR and CIG). The only one I’m aware of that currently has a yield near 10% is AES Tiete (AESYY on the pink sheets), a subsidiary of one of the big utilities that’s traded separately and owns 20 hydroelectric plants in Sao Paolo. According to Yahoo Finance’s numbers (I’d double check those, they sometimes have trouble with currency conversion for pink sheets listings of foreign stocks) the trailing yield is 9.5%. So not bad, but that’s about all I know about that one … and given the limited clues provided, we’ll have to call it a guess.
“Top 10 Stock #5 gives you a stake in dozens of infrastructure monopolies throughout the world.
“It owns electric grids in Chile. It holds railroads in Australia… ports all over Europe… coal facilities in Australia… toll roads in South America… and timberland in the United States and Canada.
“In total, 78% of the partnership’s revenues are under contracts or are regulated. Those revenues are practically guaranteed. Right now the stock pays $0.35 per unit each quarter. That dividend has increased 27% in less than one year and gives the units a yield of 5.5%.”Are you getting our free Daily Update
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