Commodities

  • 04 Jun
    This Oil Pipeline Stock is ready for a BIG upside move

    This Oil Pipeline Stock is ready for a BIG upside move

    One of the most interesting developments of the past week that a lot of investors probably didn’t pay a lot of attention to is the widening spread between U.S. (WTI) and Middle Eastern (Brent) crude oil. WTI, short for West Texas Intermediate, typically trades at a discount of a few dollars per barrel compared to Brent crude, but over the last week that spread has increased to a little over $11 per barrel. The last time that kind of spread happened was 2015, and prior to that it was 2011. The rarity of such a discrepancy is a big part of what opens up an opportunity for investors who are paying attention.

    I think a lot of stock investors miss these kinds of anomalies is because of the fact that it reflects most directly on the commodities themselves. Unless you are actively involved in trading commodities futures, you might not think too much about the price of a barrel of oil except in relation to how its impacts the price you pay at the pump for gasoline. So how does this translate to something a stock investor can use to guide an investment decision?



    A wider-than-normal spread between these two competing commodities can be caused by a lot of different things, but it usually implies some kind of negative pressure on U.S. producers. I this particular case, the spread appears to be a reflection of the reality that U.S. producers have been increasing production consistently for quite some time now, to the point that U.S. transport infrastructure – pipelines and storage facilities, in particular – to handle the supply is almost uniformly already running at full capacity. That means that producers can either scale back production, or find other transportation methods, such as truck and railroad transport, which are more expensive than pipelines. Either way, the pressure is on producers, while pipeline and storage companies are working as hard as they can to bring new capacity online.

    The problem is that new pipelines and storage facilities take time to build and get up and running. An increasing number of experts think that the current capacity limitations will persist through 2019, which means that U.S. crude prices could see limited upside potential on that commodity for the foreseeable future. On the other hand, pipeline and transportation companies are in a advantageous position, since they can charge a higher premium to those producers. Oil refiners are also in a good spot, since the bigger spread means that they can buy U.S. crude at a deeper discount, which naturally improves their profitability potential.



    There are a number of stocks that could be in prime position to see great upside due to the factors I’ve just outlined, but the stock I’m highlighting today, EPD is one that also has a good fundamental and technical basis that bolsters that forecast even more. Let’s take a look.

    Fundamental and Value Profile

    Enterprise Products Partners L.P. (EPD) is a provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals and refined products in North America. The Company’s segments include NGL Pipelines & Services; Crude Oil Pipelines & Services; Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services. The Company’s midstream energy operations include natural gas gathering, treating, processing, transportation and storage; NGL transportation, fractionation, storage, and import and export terminals, including liquefied petroleum gas (LPG); crude oil gathering, transportation, storage and terminals; petrochemical and refined products transportation, storage, export and import terminals, and related services, and a marine transportation business that operates primarily on the United States inland and Intracoastal Waterway systems. EPD has a current market cap of $63.8 billion.

    • Earnings and Sales Growth: Over the last twelve months, earnings grew by a little more than 8%, while sales grew more than 27%.
    • Free Cash Flow: Over the last twelve months, Free Cash Flow has declined modestly, but remains solid at about $1.4 billion as of the company’s most recent earnings statement.
    • Debt to Equity: the company’s debt increased by about 10% over the last year, but is manageable, as their operating profits are more than sufficient to service their debt.
    • Dividend: EPD pays an annual dividend of $1.71 per share, which translates to an annual yield of more than 5% at the stock’s current price.
    • Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but one of the simplest methods uses the stock’s Book Value, which for EPD is $10.63 per share. At the stock’s current price, that translates to a Price/Book Ratio of 2.76. The stock’s historical Price/Book Ratio is 3.4, which is 23% above its current level. If the stock rallied to par with that historical average, its price would be $36 per share, a level the stock last saw late in 2014.



    Technical Profile

    EPD has been hovering in a relatively narrow range for most of the past two years, but I think the economic factors I’ve already outlined could act as a catalyst to drive the stock out of that pattern. Here’s a look at the stock’s latest technical chart.

    EPD 5-year candlestick chart

    • Current Price Action: The chart above covers a five-year period because I want you to think about this stock’s potential beyond the limits of its range over the past couple of years. A lot of investors tend to think only about 52-week high or low ranges, but when you see that the stock’s actual high in late 2014 was around $41, the fact that the stock is now pushing near to a 52-week high seems less formidable.
    • Trends: We tend to think about stock trends only in upward or downward terms, and in that context the stock’s short-term upward trend since April of this year is a positive. I’ve used the horizontal red and green lines on the chart to illustrate the stock’s actual long-term trend, which in real terms can only be considered sideways. The stock is at the upper limit of its 2-year range, and that does mean that the stock could break down and drop back down toward the $24 price range it last saw two months ago. On the other hand, a break above that red resistance line, to the $30 level should give the stock the momentum to drive to between $34.50 and $35 in the near-term, and if the trend holds, it wouldn’t be surprising to see the stock test its multi-year high around $41. That is, admittedly, a best-case scenario, but it also offers a long-term price target nearly 40% above the stock’s current level.
    • Near-term Keys: Watch the stock’s movement between its current level and $30. A break above $30 is a prime opportunity to go long, while a break back down below $29 could offer a good bearish-oriented trade, either by shorting the stock or by buying put options.


    By Thomas Moore Commodities Energy Sector Oil
  • 21 May
    Here’s Why You Should Stop Chasing Returns & Focus On Managing Risk Instead

    Here’s Why You Should Stop Chasing Returns & Focus On Managing Risk Instead

    • Despite rising inflation, copper prices have been declining.
    • Higher interest rates are putting pressure on emerging markets and their $19 trillion of debt.
    • However, the best investing opportunities usually arise when things aren’t good.



    Introduction

    I was really bullish on copper when it was around $2 per pound a year ago, but now I’m not that bullish anymore as it is above $3. More →

  • 09 May
    I Made A Fortune On NSU – Here’s How To Find Similar Investments

    I Made A Fortune On NSU – Here’s How To Find Similar Investments

    Today, I want do describe my investing style and how it works which will give you insights into how I reach satisfying investment returns with a margin of safety.

    I’ll use Nevsun Resources (NYSE: NSU) as an example as it has been one of my largest portfolio positions over the last year.



    More →

  • 07 May
    What You Can Learn From Berkshire’s Annual Shareholder Meeting

    What You Can Learn From Berkshire’s Annual Shareholder Meeting

    This past Saturday, the Woodstock for capitalists was on as Warren Buffett and Charlie Munger held their annual shareholder conference.

    If you want to succeed in investing and reach your financial goals, this conference and the insights from it are all you need to listen to in order to learn about investing, what’s going on, and what to do about it.

    In today’s article, I’ll summarize what the key points to take out are and also save you the 6-hour watch.



    More →

  • 24 Apr
    Silver Is Up & This Miner Looks Like A Very Interesting Investing Opportunity

    Silver Is Up & This Miner Looks Like A Very Interesting Investing Opportunity

    • Silver is up slightly which is interesting from a mining perspective.
    • I’ll analyze Pan American Silver to continue with our sector analysis.
    • This article ends with a comparative table of the miners analyzed up to this point.



    Introduction

    Last month, I discussed how silver looks like an interesting risk reward hedge to whatever might happen in the future, from loose monetary policy to even increased industrial demand.

    I’ve discussed some silver miners that also represent interesting investing opportunities, so today I’ll first give a short update on silver and continue with my discussion on a few silver miners. More →

  • 20 Apr
    If What The CEO Says Plays Out, This Silver Stock Could Explode

    If What The CEO Says Plays Out, This Silver Stock Could Explode

    • We’ll discuss the value of the silver First Majestic has in the ground.
    • We’ll also discuss the value of the company in relation to silver prices.
    • And we’ll discuss the corporate governance and the stories AG’s CEO likes to tell.



    Introduction

    I recently wrote about how silver looks good from a risk reward perspective. One of the most interesting silver stocks is First Majestic Silver (NYSE: AG).

    AG has been severely hit over the last two years, and it’s now time to look at whether it is a bargain or not, or if the risks are too high. More →

  • 19 Apr
    Lithium Is Hot, But Here’s What You Need To Know Before Investing In The Trend

    Lithium Is Hot, But Here’s What You Need To Know Before Investing In The Trend

    • Is the current decline a lithium buying opportunity?
    • We’ll analyze the sector, and the key factors to watch in the industry.
    • I’ll use a bottom up approach and discuss the company Lithium Americas.



    Introduction

    We all know the story about lithium and the expected surge in demand coming from the electric vehicle boom. However, some stocks haven’t performed as many expected in the last few months, and I want to look at what’s going on to see whether it’s a buying opportunity or if we should still stay clear of lithium miners.

    Today, I’ll use a bottom up approach to discuss Lithium Americas (NYSE: LAC). By analyzing the company, we will see how it fits in the lithium environment and what we have to seek out when analyzing investments as there is a high likelihood that lithium will be the place to be over the next 10 years due to its lightness.  More →

  • 13 Apr
    Tahoe Resources Looks Cheap, But Beware The Risks

    Tahoe Resources Looks Cheap, But Beware The Risks

    Tahoe Resources (NYSE: TAHO) is a perfect example of the risks when investing in miners. Its stock price has preformed terribly in the last 5 years, and the final blow was when the government of Guatemala suspended operations at its flagship Escobal mine. More →

  • 02 Apr
    What You Need To Know About Investing In Gold In 2018

    What You Need To Know About Investing In Gold In 2018

    • What’s moving gold prices up.
    • What can happen to gold in the short to medium term.
    • And how to use gold as a hedge in this environment.



    What’s Moving Gold Prices Up

    When interest rates go up, gold—as a non-yielding asset—is supposed to go down, but we haven’t seen that in the last 12 months.

    Gold prices are up almost 10% over the last 12 months. More →

  • 30 Mar
    Read This Before Investing In Exxon

    Read This Before Investing In Exxon

    • I’ll discuss the current earnings and XOM’s long term forecast. I’ll also discuss some factors that might jeopardize the forecast.
    • I’ll talk about why XOM is falling.
    • And I’ll conclude with a risk reward view on XOM.



    Introduction

    Exxon Mobil (NYSE: XOM) is down 11% year to date and I’ve seen many headlines discussing how the stock is extremely cheap and a bargain.

    I’ll first discuss why the stock is dropping, analyze the company, and then give you my view on the risk and reward of investing in XOM.  More →

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