There's ‘Black Gold' in Pipeline Stocks

02/21/2013 7:00 am EST

Focus: ENERGY

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

The US is becoming energy independent, says Louis Navellier, and that is creating tremendous opportunities in pipeline investments.

Nancy Zambell: My guest today is Louis Navellier, editor of Blue Chip Growth as well as several other important newsletter publications. Louis, thanks for joining me.

I wanted to talk to you about the market. We had a great January. February stumbled a bit. Do you think we're going forward? Are we going to keep going above 14,000 or fall for a while?

Louis Navellier: I definitely think we're going to break through 14,000. It's just that in January, we had such a strong flow of funds. For lack of a better word, the market kind of melted up.

Historically, the flow of funds starts to ebb a bit in February. So, it's just time for the market to burp-consolidate a bit. I don't see any serious correction. If anything, it'll be more of a rotational correction from one industry group to another.

After this February pause, we should be going higher in March and April, which are seasonally strong months. There is a lot of pension funding in March and April. This is a pause before the next surge.

Nancy Zambell: That sounds very good. Now, in terms of economics-everyday we're still hearing mixed economic news, but mostly on the upside-a better housing market, better unemployment, but consumer spending has sort of paused. It had been doing very well, and then we saw a pullback. What is your viewpoint on that?

Louis Navellier: That's an outstanding point. Retail sales were only up 0.1% in January. That was clearly disappointing. I think what rattled the Street the most was an internal e-mail leaked by a Walmart (WMT) executive that the first two weeks of sales in February were the worst February sales he's seen in seven years.

It's clear that people's paychecks have been pinched. There are higher withholding taxes now. No matter how much money you make, you're taking home at least 2% less. And if you pull money out of the consumer's pockets, it shows up.

Now, I wouldn't worry long-term about the discount retailers like Walmart, or especially like a Costco (COST), but with consumers being 70% of our economy, it could weigh in on GDP growth.

Nancy Zambell: Then, what sectors are you looking for to do pretty well? Small caps traditionally do very well in the first half of the year, but I know you have a lot of large-cap stocks in your Blue Chip Growth. And those all seem to be doing very well in terms of their earnings reports.

Louis Navellier: We've had a stunning earnings season, and we're very, very proud of that. We have better sales and earnings than the overall market, even though we have a very high dividend yield-higher than the S&P. And of course in Blue Chip Growth, of our 36 stocks, 35 are buying back $1 billion or more in stock a year.

I will admit that my Emerging Growth letter did better last year and is doing better this year. I think the small-cap stocks have an edge through April. Because of all the inflows, they're very volume-sensitive. I think from May on, it'll be more of a large-cap (trend) in the global market.

The primary reason is the dollar is weak. A weak dollar tends to create windfall profits for big multinationals in the US, as well as for a lot of global stocks. The weak dollar is definitely the brewing story. And a lot of commodity-related stocks are very good buys right now, and will continue to be good buys, because they're going to be posting record earnings in the upcoming months.

Nancy Zambell: Do you have a couple of good stocks you'd like to share with us?

Louis Navellier: Sure. First of all, there is a shortage of pipelines in the United States. So, we like things like Kinder Morgan (KMI) and Plains All American Pipeline (PAA), both pipeline-related companies.

The refiners are literally reaping windfall profits. The primary reason is between all the fracking in West Texas and North Dakota, there's a glut of light sweet crude available for the refineries. They're buying that oil at a deep discount and posting record profits.

That would favor something like a Marathon (MRO). We also like some smaller ones, like a CVR Energy (CVI) or an Alon USA Energy (ALJ). Those are smaller refiners.

Nancy Zambell: Do you think that there's just going to be a season for that, or do you think that through the end of the year this would be a good sector to be in?

Louis Navellier: I think it's a great sector until we become a net energy exporter. Basically, the US is going to surpass Saudi Arabia in overall energy production in the upcoming years, and I'm counting natural gas and even ethanol.

We're going to get to the point where we're going to have to reverse the pipelines. And instead of going to Cushing, Oklahoma, they'll be going to the Gulf of Mexico-and beyond. So, we will eventually become a net energy exporter.

I don't think we'll be exporting as much crude oil as exporting refined product-like diesel and things like that.

Nancy Zambell: Well that's a day to look forward to, isn't it?

Louis Navellier: Yes, it's coming.

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