“Biden’s Disastrous Energy Policy Just Handed Us the Biggest Oil Boom of Our Lifetimes. Here’s precisely how to play it for your chance at 250% gains in the year ahead…”

That’s the headline of Alexander Green’s latest promo for his Insider Alert newsletter ($1,295/yr, no refunds), which is put out by The Oxford Club… and as in the past, the general theme of the ad presentation, which takes the form of an “interview” by publisher George Rayburn, is that you want to buy the stocks that big investors and company insiders are buying.

Which is a fine strategy, for sure — patterns of insider buying do typically lead to above-average stock performance. Insiders don’t necessarily have much better stock market timing than you or I do, they screw up sometimes, too, and “typically” doesn’t mean “always,” but they do, at least, know a lot more about the inner workings of the company. It’s no surprise that strong insider buying increases a company’s odds of having a good year.

We last looked at one of Alex Green’s Insider Alert teases last July, and at the time he was talking about these as mostly shorter-term trades, averaging 90 days or so — he doesn’t say as much about the timeframe with this pitch, but if you had bought those three stocks the results would have been mixed… two of them were pretty disappointing from the jump (a REIT and a bank, so the second half of 2022 was “meh” for them and the first half of 2023 has been terrible), though the third, Carvana, soared quickly before collapsing again, so it might have turned into profits if investors handled that nimbly enough. Here’s the chart of those three stocks starting when we covered that July 2022 Insider Alert tease (that boring line in the middle, in orange, is the S&P 500, just for context)…

Today his focus is on an energy company, with a good dose of political red meat thrown in to help make a connection with readers (“blame the politicians” is a good way to make readers agree with you… and in the case of investment newsletters, which skew heavily to an older, wealthier, and more Republican-leaning and fiscally conservative audience, that usually means a strong Conservative/Republican stance or a libertarian/government is stupid stance will help sales).

That doesn’t mean Green is right or wrong, of course, and I don’t know what his personal political opinion might really be, it’s just a reminder that this kind of talk is marketing. The first rule of marketing is to establish a rapport with your audience, and telling people what they want to hear is one easy way to do that. I don’t care who you vote for, and your investment portfolio doesn’t really care, either — that’s just a reminder that when you find yourself nodding along or talking to yourself while reading a promo, saying stuff like, “yeah, he’s so right! That’s what I always say!”… whether or not you’re right, about politics or whatever else, you’re probably being played.

Here’s a bit more from the ad:

“I’ve found a unique new way every American can profit in this market… despite Biden’s misguided actions.

“You see, while Biden did everything he could to stifle the oil and gas market…

“He inadvertently created a nearly PERFECT scenario for oil investors.

“In fact, I believe we’re entering into a new bull market for oil…

“One that will send oil prices skyrocketing to $350 a barrel in the coming years….

“The Big 5 oil companies – Shell, Exxon, BP, TotalEnergies and Chevron – raked in nearly $200 billion in record profits this past year.

“Meanwhile, the stock market is still down nearly 12% since the start of 2022.

“By comparison… Energy’s been up more than 69%.”

That’s certainly true — energy isn’t at its peak anymore, as you’ve probably noticed, but oil and gas prices shot higher after the Russian invasion of Ukraine, and generally hit new highs last fall, which sent the stocks of most oil and gas companies soaring… though so far in 2023, to be fair, the broad market is beating the average energy stock pretty handily (the S&P 500 is up about 14%, the average big energy stock is down about 10%, as measured by the Energy Select Sector SPDR ETF (XLE)).

And we certainly know that Warren Buffett and lots of other folks have been both buying and talking up energy stocks of late… from the ad…

“… the smartest investors on the planet know this creates a unique situation.

“Energy stocks are becoming “irresistible” to the wealthiest insider investors in the world.

“For example, The Wall Street Journal recently featured a story on Warren Buffett’s gigantic bet on energy.

“And they asked why Buffett… after years of staying away from energy investments… was suddenly making it the core of his portfolio.

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“Well, I’ve got the answer.

“It’s because during challenging times like these… when inflation is running hot…

“And interest rates run higher to try to tame inflation…

“Energy dominates.”

That has certainly been true in the past — energy is a smaller part of our purchasing than it used to be, and it’s a smaller part of the stock market than it was in decades past, but it’s still true that gas prices are a big part of inflation, and energy prices trickle through to other products. Alexander Green is not alone in thinking that we’re in the early stages of another energy bull market, and maybe we are, I certainly don’t know what the future holds… but let’s see what clues he drops about his favorite stock to play this bull market.

Clues…

“In fact, it might be the most astonishing energy investment opportunity you’ve ever heard about…

“Insiders are gobbling it up like a pack of hungry lions.

“The self-made billionaire and company founder hasn’t invested just hundreds of thousands… or a couple million dollars of his own money…

“He’s in for $76.8 million so far in 2023… and just went wild in the month of May….

“… there hasn’t been a single insider sale of this company in three years….

“… $342 million in insider buys since 2021… including a bunch of huge buys in May of 2023… and $0 in sales.”

So… what does it do?

“I believe this company’s business model positions it to become one of the most consistently profitable oil and gas businesses for the foreseeable future.

“It’s doing amazing right now. And its numbers are only likely to get bigger and better in the months to come.

“In short, rather than a company that explores and drills for oil… this is a pipeline company.

“It owns over 100,000 miles of oil and gas pipelines across the country….

“By shutting down new pipelines, these activists only make the existing pipelines more important and profitable.

“Oil producers like Chevron, Exxon Mobil and Occidental pay top dollar to use these pipelines to get their crude to market.

“So this company is like a toll collector for big oil and gas firms.”

And they sum it up on the order form…

“Five additional billionaires invested hundreds of millions.

“In fact, billionaire Chuck Davidson of Wexford Capital just upped his position by 41% in the most recent quarter.

“And billionaire Bill Gross, the legendary co-founder of Pimco, personally owns this company and calls it his ‘premier investment.’

“It isn’t just billionaires loading up. The people running the company are gobbling up shares too.

“Officers and directors recently purchased a combined $8 million.

“They’re the ones who documented the $5 billion profit growth over just two years… the $89 billion in record-high revenue (up 130% in two years)… the ZERO-dollar figure in company debt… and the stacked backlog of future revenues…

“Like the 18-, 20- and 25-year contracts it’s locked up with international energy giants like Shell, China Gas and South Korea’s SK Gas, among several others.

“The company pays a nearly double-digit dividend, and it’s announced plans to increase the distribution by 3% to 5% annually.

“Yet the entry price for you to begin profiting from it is only $12.”

That’s getting to be an embarrassment of clues, but we’ll just throw in a more recent tidbit to close things out today…

“Sales are projected to grow every year as far out as the projections go, through 2025.

“All the while, this company has been rapidly expanding.

“In fact, the company just acquired a pipeline operator in the Permian Basin for $1.5 billion….

“And at the Gulf Coast, it’s building a major facility on the Louisiana coastline, which now gives it access to international energy transportation.

“From that location, it’s expanding into a global business.”

So… hoodat? The Thinkolator tells us that we wasted too much time checking out those clues, and that it knew in the first minute that this is… Energy Transfer (ET), one of the largest master limited partnerships in the US oil and gas sector. ET is a $40 billion MLP, owner of with a distribution that has just now caught up to where it was before COVID, giving it now a distribution yield of 9.8% at $12.60 per share. Here’s how they describe themselves:

“Energy Transfer LP (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with approximately 120,000 miles of pipeline and associated energy infrastructure. Energy Transfer’s strategic network spans 41 states with assets in all of the major U.S. production basins. Energy Transfer is a publicly traded limited partnership with core operations that include complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids (“NGL”) and refined product transportation and terminalling assets; and NGL fractionation. Energy Transfer also owns Lake Charles LNG Company, as well as the general partner interests, the incentive distribution rights and approximately 34% of the outstanding common units of Sunoco LP (NYSE: SUN), and the general partner interests and approximately 47% of the outstanding common units of USA Compression Partners, LP (NYSE: USAC).”

Sunoco LP is mostly a distributor of fuel to gas stations, USA Compression provides compression services to producers and gatherers of natural gas. Neither is huge, in the context of this large partnership, but both are profitable and contribute to cash flow at ET. The Lake Charles LNG project is facing some kind of regulatory challenge at the moment, with the Department of Energy refusing a request for an extension of their planned work to let them start exporting later than 2025, which could apparently scuttle the Lake Charles LNG project entirely, though that news is still pretty fresh (last week) and it could certainly change. That could change the understanding of the future international sales by Energy Transfer, and it would obviously be bad news if that project is scrapped, since they’ve poured hundreds of millions of capex into the project, but it wouldn’t change the general profitability of their 100,000+ miles of pipeline or their midstream facilities.

And there has been a LOT of insider buying at Energy Transfer — including big purchases by co-founder and Chairman Kelcy Warren, but also by a handful of other insiders who have made smaller purchases over the past year, with the stock mostly in the $11-13 range.

Energy Transfer is a master limited partnership, which means that you can buy and sell it like a stock, but it’s not quite the same as a typical corporation. They are designed to be tax pass-through entities, sort of like a Real Estate Investment Trust (REIT), so ET doesn’t pay corporate taxes… and they pass that tax obligation along to shareholders, who will get a partnership filing (a K-1) each year to use in reporting their taxes. That doesn’t necessarily mean you’ll pay higher taxes — in fact, for most MLPs you get a lot of tax benefits, in part because depreciation charges are very high for these kinds of assets, so most MLPs pay out a lot more than their “income” as distributions to partners, and those excess distributions are called “return of capital”, which means you essentially defer taxes on that income until you sell your partnership units. Filing your taxes is a little bit more complicated, but it’s not as bad as it used to be, and the income can certainly be good.

Energy infrastructure MLPs also shouldn’t really be all that sensitive to energy prices… but they kind of are, anyway. They are “toll road” operators, so it shouldn’t necessarily matter to them whether natural gas is at $4 or at $8, or whether oil is at $20/bbl or $120/bbl, they can charge the same fee for transporting it… but in practice, lower prices usually mean less production and less demand, and that means their pipelines and processing facilities are not as busy and can’t charge as much. MLPs do tend to follow energy prices up and down, at least to some degree. Here’s a chart of the total return for ET unitholders, including dividends, going back to 2006, compared to the S&P 500 and to oil and gas prices:

Pretty impressive, right? The share price itself has not been dramatic, it went from about $6 in 2006 to $12 this week, and we can all do that math, but all of those relatively high dividends add up to something dramatic over time. And it would have been higher than that if all the distributions were reinvested into more shares. It’s been a very successful investment for a long time… but it absolutely is hugely impacted by the big swings in energy prices — ET soared to $35 the first time oil got over $100/barrel in 2013 and 2014… but then when oil prices collapsed, the price of ET fall to about $5 in very short order. Less dramatically, when oil collapsed during the COVID shutdowns, ET shares fell from $13 to about $5. The returns have been fantastic, and when energy prices are just bouncing around, up or down 10-20% in a year, the shares can be quite stable… but if oil and gas make another really big move, either up or down, expect Energy Transfer shares to react as well.

And like all high-yield investments, the master limited partnerships tend also to be influenced by prevailing interest rates — that’s both because these partnerships use a lot of debt to finance their expensive asset acquisition and construction, and because these are investments that have to compete with other income-focused investments in the eyes of you and I. If we’re getting 1% from T-Bills, maybe a 4-6% yield from a MLP looks appealing… but when T-Bills pay 5% yields, maybe we demand 8%, or 10%, from our riskier income investments. That’s no surprise, the same is true of REITs and preferred shares and lots of other parts of the “income” world — over the past year, with inflation causing big increases in interest rates, “safe” stuff started to yield more, and that meant “less safe” stuff had to yield more, too, to keep up. If you can’t increase the distribution or dividend quickly enough, then “yield more” just means “price goes down.” ET has been saved from some of that by last year’s rise in energy prices, which gave them enough cash flow to increase their dividend and recover all the dividend cuts they had to make during COVID, but when there are big cycles in interest rates or energy prices, the pipeline and midstream partnerships do feel at least some of the impact.

ET is a pretty easy buy here, frankly, they do have good insider buying and they have had a strong business for a long time. I don’t tend to get into buying MLPs directly, I’m happy with buying the average in this case and not spending a lot of time analyzing the different MLPs or dealing with K-1 forms, so I just use the Alerian MLP ETF (AMLP), but if I were to buy them directly or wanted to get some of that tax benefit, my first look would be at Enterprise Products Partners (EPD) and Energy Transfer (ET), which are two of the largest players in the space, with diversified operations and major pipeline networks.

Alexander Green seems very confident about the near-term future, too, and says in the piece that he’s got an options play to recommend as well… here’s how he describes that:

“Will the $12 energy play shoot up 3,600%? That would be extraordinary if it did.

“I am recommending a simple buy on the ticker… $12 is all it takes to get your hands on it.

“However, I’m also recommending a special “coattail” trade on this $12 energy company involving a specific options play…

“The exact option I’ve selected is projected to multiply your money several times over within a year… if all goes as planned.”

What might that be? I don’t know which options contract Green might prefer, but sometimes, if a newsletter makes an option contract recommendation, that can be enough to really skew the trading volume or open interest in that particular contract, and make it stand out. If you go out to the June 21, 2024 expiration to be at the edge of “within a year,” the most active trading volume is in the $15 call options, at about 35 cents. The open interest is largely in the strikes closest to the current price, so the $12 and $15 calls both have a bout 25,000 contracts outstanding, way more than is typical. The trading volume lately, however, has been far more dramatic in the January 19, 2024 expiration date for the $13 call options, that contract had trading volume of almost 9,000 contracts, far more than existed before that (the open interest is only about 5,000), which indicates that a huge number of traders got interested in it all at once.

So my best guess would be that Alexander Green is recommending the January 2024 $13 call options, which are currently trading at about 63 cents. If you haven’t traded options before, that would mean that for $63 you can buy the right to purchase 100 shares of ET at $13 per share at any time before January 19, 2024. That essentially means you need ET shares to go up 10% or so in the next six months, and if they don’t you’ll probably lose 100% of that $63. If the shares go soaring to $20, though, jus to throw out a random example, then you would get a profit of $700 on your $63 investment.

The reason that the gains are so potentially high, of course, is that most people don’t think ET is going to go up 50% in the next six months. And that’s probably because the stock has been in a very tight range, it hasn’t closed above $13 or below $12 in the past three months. Options on high-dividend stocks are generally less expensive, because investors know that most of the time, an investors’ profit from stocks like ET is going to come primarily from the dividend… and the person who buys that call option to speculate on the future share price does not get the dividend payments.

Sound like your kind of investment? Ready to bet on a big bull market in oil in general, or just think that pipelines will indeed grow in value as new pipeline projects get harder and harder to build? Have other favorites in the MLP space that you prefer? Too bored to tolerate more MLP talk? Let us know with a comment below.

P.S. Alex Green pitched a couple other “special reports” on big insider buys in this ad, too… I’ve run out of time, but will get to those in a future installment. Thanks for reading!

Disclosure: Among the investments mentioned above, I own shares of the Alerian MLP ETF and Warren Buffett’s Berkshire Hathaway. I will not trade in any covered investment for at least three days after publication, per Stock Gumshoe’s trading rules.