Be a little more patient, as it will likely be soon before the market tells us if it wants to bottom...
Mid-Year Top Performers: Robert Rapier
07/04/2016 10:00 am EST
At the start of the year, MoneyShow featured its annual Top Picks report asking the leading advisors for their favorite investment ideas for 2016. In the report 85 stocks and funds were recommended. This interview is part of our series highlighting the top performing advisors as of mid-year.
Steve Halpern: Our special guest today is Robert Rapier, editor of Investing Daily's Energy Strategist. How are you doing today, Robert?
Robert Rapier: I'm doing great, how are you Steve?
Steve Halpern: Very good. Thanks for taking the time. Now, congratulations are definitely in order. In our 2016 annual top pick survey you chose EQT Corp. (EQT) as your single favorite stock, and since the start of the year it's up over 50%. Could you share an overview of EQT and explain what the company does, and highlight your original rationale behind this pick.
Robert Rapier: Sure, EQT is a major natural gas producer in the Marcellus Shale, and it was very clear you know natural gas does not go below $2.50 a million BTUs very often, and I've been highlighting this.
It's only happened previously about three times in the last 20 years, and every time it did prices more than doubled in the subsequent two years.
For the past six or eight months natural gas prices have been below 2.50, and they've been bouncing around $2 in fact so natural gas itself I believed was going to go up and EQT was a very solid replace natural gas company.
The natural gas in the short term is all about the weather so I got a little lucky with the weather as the beginning of summer is very hot so there's a call on utilities to use more natural gas because they need to produce more power for air conditioning.
The timing just worked out. It could have been if natural gas was still hanging around $2 EQT may not have moved much yet. I was confident it would move, it's just that it moved at the right time.
Over the past month natural gas prices moved from about $2 a million BTUs up to $3, and natural gas companies have followed suit, and it performed very well.
Steve Halpern: Looking ahead to the second half of the year, do you still remain optimistic on both the outlook for the natural sector, as well as on this stock in specific.
Robert Rapier: Well, I think the upside is definitely limited relative to where we were six months ago. Natural gas prices right now at $3 are probably fairly valued, but they do have some momentum so we may see them advance a little bit more.
From a fundamental perspective -- and I always invest from a fundamental perspective -- natural gas inventories are very high still, and I think people are looking down the road, and seeing there's a lot of demand drivers that are going to come online that will eventually correct that inventory situation.
think for a longer term investor natural gas is still a good buy, and EQT is still a good buy. Short term, I think there's a little bit more of risk of a pull back as especially if the weather moderates here.
Again short term you're really sort of at the mercy of the weather. If summer moderates, and then we go into a mild winter we could see a pullback in natural gas and in natural gas companies.
For longer-term investors I would say still natural gas is a good place to be. I think prices will be higher than they are now, but we may see a pullback between now and then.
Steve Halpern: Now at the start of the year you also recommended a company called Magellan Midstream Partners (MMP), which is up 12%, again strongly outperforming the market. Can you give us a little background on Magellan, and discuss whether or not you still recommend this stock.
Robert Rapier: Yes, Magellan is one of the larges Midstream master limited partnerships, so they're involved in transportation of refined products, crude oil. They have a very large asset portfolio across the country, and they yield about 4.2%.
They're very conservative. I added that as a conservative investment that I felt like the downside was fairly limited. Also we've got buy limits on Magellan Midstream at $80, we're at $76 now so we're approaching that buy limit. Again it's another one that's for longer term. I think it'll be fine.
I think the midstream’s, overall, the MLPs bottomed out in February, and the Alerian MLP Index, look there's another indicator and it's the yield of the Alerian MLP Index.
Previously, it had gone over 10% two times in the last 20 years, it went over 10% for the third time in 20 years in December, and it's since run up by 35% or so. Magellan Midstream is a component of the Alerian so the whole sector to me was undervalued.
That indicator said the sector's undervalued. It hasn't gone up as much as sector, but again it's very conservative so your downside is limited.
For more aggressive investors I would have maybe recommended something different, but that was a conservative pick. It remains a conservative pick. For somebody looking for income, and limited downside risk it's still a buy.
Steve Halpern: Before I let you go, given that EQT and Magellan are stocks you like for the long term, but you're not particularly or overly bullish on for the near term. Perhaps you'd be kind enough to highlight a name or two that you are particularly encouraged by for the second half of the year.
Robert Rapier: Well, we just sent out an alert yesterday for BP (BP). BP had gotten hit pretty hard by the British folk deciding to exit the EU, and we felt like it was being unduly punished.
I haven't been bullish on BP over the years very often, but I think in the wake of the Gulf of Mexico disaster they may have sold off more than they should have. They've got the deal with the government settled last year.
I felt like they probably are undervalued, and they're up 5% today. They yield nearly 7%, and are generating decent cash flow so we thing BP has come out of the Gulf of Mexico disaster in pretty good shape.
It could have been a lot worse for them. They're trading at a fraction of where they were before the disaster, and I think they're probably good for the short term.
I just added SolarEdge (SEDG), a solar converter company to my own portfolio about a week ago. I think they're profitable. I think the solar sector is poised to do very well over the next five to ten years.
Then Enviva Partners LP (EVA), outside the oil and gas station. Enviv Partners makes wood pallets, and they sell them into the European market. They are growing by leaps and bounds.
They yield nearly 10%, and they just had their IPO a year ago, and year over year now they are the number one MLP performer over the past 12 months.
The oil and gas MLP has gotten beaten up pretty badly, and even though they recovered since February. They bottomed out in February they are lagging a bit and Enviva Partners has done quite well, and I continue to recommend for the long-term.
Steve Halpern: Again, our guest is Robert Rapier the Energy Strategist. Thank you so much for your time today.
Robert Rapier: Thank you Steve.
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