Category Archives: Energy

The Fed Just Cut Rates: What to Do Now

So the Federal Reserve cut interest rates. This was their third rate cut in the last three months. The new target range for overnight interest rates is 1.5 to 1.75%. That’s below the rate of inflation.

There are three things you should do right now.

#1. Don’t panic.

#2. Seriously, don’t panic.

#3. Make sure you own a broad, well-diversified portfolio of high-quality growth stocks.

I can help you with #3, but for the first two, well…you’re on your own but hopefully #3 will help.

Before I go further, let’s look at what the Fed is doing and why.

The Federal Reserve’s Game Plan

Not that long ago, the Federal Reserve was on a path of increasing interest rates. After all, the economy was slowly getting over its long hangover, and interest rates had been cut to the bone. Things were gradually getting back to normal.

In a three-year stretch, the Fed hiked interest rates nine times. Not only that but going by their public statements, they seemed on track for several more hikes. For the most part, Wall Street was cool with that.

But then it stopped, and Wall Street got scared. In the fourth quarter of last year, stocks plunged. Not only that, but stocks in economically sensitive areas really plunged. President Trump wasn’t shy about expressing his displeasure with the Federal Reserve and all those higher rates.

The key metric to watch is the yield on the two-year Treasury note. It’s not perfect, but the two-year yield can often be a decent forerunner for Fed policy. Last November, the yield on the two-year got as high as 3%. As worries about the economy and trade war set in, that yield started to plunge. By May, the two-year was below 2%, and earlier this month, it fell below 1.4%. That’s a stunning fall for such a short amount of time.

The Fed had to keep up. That’s why in late July, the Fed cut rates. They cut again in mid-September and again today. Jay Powell, the top banana at the Fed, said that this is simply a “mid-cycle” adjustment and not the start of recessionary rate-cutting splurge.

Wall Street believes him. At least for now. After today, the Fed will probably chill out on any more rate cuts, and they’ll assess how the current cuts have worked. The Fed, I should add, does not exactly have a stellar track record when it comes to forecasting the economy.

What does this mean for us? Lower rates are good news for investors for two reasons. One is that it lowers the cost of borrowing, and that’s a major expense for companies. It will also lower the cost of many variable-rate mortgages. Importantly, lower rates tend to help equity valuations. The lower rates go, the higher price/earnings ratios can rise. (Not always, but in general.)

There’s an old saying on Wall Street, “don’t fight the Fed.” That’s very true. Don’t forget; they have a lot more money. This is why investors should be following the Fed’s path.

The key insight is that lower rates help particular sectors of the economy. Basically, anything that is bought with financing; housing is the obvious example. Another area is the industrial sector.

Consider a company like 3M (MMM), formerly known as Minnesota Mining and Manufacturing. This is a classic example of an economically sensitive industrial stock.

Blue chips don’t get much bluer than 3M, and the company is a lot more than Post-It Notes. Last year, 3M had revenues of more than $32 billion. The company is a Dow component, and it has 93,000 employees all over the world.

There’s something else it has—an amazing dividend streak. 3M has raised its dividend every year for 60 years in a row. That dates back to the Eisenhower administration.

This is a good time to give 3M a close look because the stock has disappointed Wall Street this year. Just last week, the company had to lower its business forecast again. This could be 3M’s worst year for sales growth since the recession.

But remember, most of those results happened when interest rates were higher. The lower rates will help 3M and its customers. You always want to pay attention when good companies go through rough patches. Over the last two years, the S&P 500 has gained 19%, while 3M has lost 19%.

Honestly, I’m not too worried about 3M. This is one of the largest and most innovative companies in the world. 3M currently pays out a quarterly dividend of $1.44 per share or $5.76 per share for the year. That currently works out to a dividend yield of 3.4%. That’s about twice what the Fed is charging.

3M will be back, and the Federal Reserve is helping.

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Source: Investors Alley

4 Energy Stocks Ready to Rally

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U.S. equities are recovering on Tuesday thanks to a steepening of the yield curve. Put more simply, the bond market is suddenly feeling a little less worried about the specter of a recession after long-term rates fell below a critical short-term rate recently.

Stocks are taking their cue from this larger and much more important marketplace, helping the S&P 500 push back over the critical 2,800 level. Will the move above this threshold, which has confounded the bulls repeatedly since October, finally be definitively crossed?

If it is, newfound strength in the energy sector will be a key driver. Quietly, hoping not to attract attention to itself, crude oil has been steadily gaining ground since bottoming in December. With the start of the summer driving season near, West Texas Intermediate is once more flirting with the $60-a-barrel level. The Energy Select Sector SPDR (NYSEARCA:XLE) is following suit, preparing for a move up and over its 200-day moving average.

While I’ve recently discussed a few mega-cap energy stocks, here is a look at four slightly smaller names that are worth a look:

Occidental Petroleum (OXY)

Shares of Occidental Petroleum (NYSE:OXY) are preparing to break up and and out of a tight three-month consolidation range as it extends away from a rising 50-day moving average. Next stop is a test of the 200-day average, which would be worth a gain of 6% from here. The company recently announced that it plans to double crude exports to 600,000 barrels per day in 2020.

The company will next report results on May 8 after the close. Analysts are looking for earnings of 76 cents per share on revenues of $4.1 billion. When the company last reported on February 12, earnings of $1.22 per share beat estimates by six cents on a 33.8% rise in revenues.

ConocoPhillips (COP)

ConocoPhillips (NYSE:COP) shares are rising again above its 200-day moving average, returning to the upper end of a trading range going back to late October. Already enjoying a 20%+ rally off of its late December low, watch for a move to prior highs near $78 — which would be worth a gain of more than 14% from current levels.

The company will next report results on April 25 before the bell. Analysts are looking for earnings of 76 cents per share on revenues of $8.5 billion. When the company last reported on January 31, earnings of $1.13 per share beat estimates by 11 cents on over $9.1 billion in revenue.

Anadarko Petroleum (APC)

Anadarko Petroleum (NYSE:APC) shares are coiling up nicely within a four-month consolidation range, readying a powerful breakout that should see a test of the 200-day moving average. Such a move would be worth a gain of nearly 30% from here. The stock has been stock in a multi-year trading range, with resistance near $75 (first reached in 2011) and support near $40 (in place since late 2017).

The company will next report results on April 30 after the close. Analysts are looking for earnings of 19 cents per share on revenues of nearly $3 billion. When the company last reported on February 5, earnings of 38 cents per share missed estimates by 24 cents on a 14.3% rise in revenues.

Pioneer Natural Resources (PXD)

Similar to other names on this list, Pioneer Natural Resources (NYSE:PXD) is enjoying a solid base of support after months within a tight consolidation range that sets up a run at its 200-day moving average. Such a move would be worth a gain of more than 11%. Shares of shrugged off some bad news, including a downgrade from Mizuho on March 19.

The company will next report results on May 1 after the close. Analysts are looking for earnings of $1.52 per share on revenues of $2.2 billion. When the company last reported on February 13, earnings of $1.18 per share missed estimates by 16 cents despite a 75.4% rise in revenues.

As of this writing, the author held no shares in the aforementioned securities.

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This Penny Stock to Buy Is Profiting from the Solar Boom

Today, I’m going to show you one of the best penny stocks you can buy right now. You see, this stock is a play on the solar industry, which is absolutely booming.

A lot has happened over a short period with respect to the solar power industry. For much of 2018, oil prices were soaring and reached their peak in November at close to $70. Most of this increase was due to higher interest rates from the U.S. Federal Reserve and a strong dollar.

As crude prices climbed, so did the price of solar stocks.

This wasn’t just a small bump, either. In just a few short months, there were jumps of 50% or more on some of the top solar stocks.

Sadly, this rally was short-lived.

Toward the end of 2018, there was a market rally in bonds and another interest rate hike took the dollar much lower.

The price of crude oil dropped when the dollar lost momentum and traders pulled out of solar stocks to lock in profits.

Market volatility didn’t help either. What began as a 50% bump in solar stocks ended up being losses of almost 20%.

This wasn’t the first time this has happened with solar stocks either.

There was a major rally with solar stocks several years ago when the price of oil was over $100 per barrel. The solar industry was young at that time, and some of the early investments were followed by share price losses.

However, investors were not fazed.

Compared to where they trade today, solar stocks were trading at prices that were three and four times higher.

So, why get excited about solar stocks now?

The truth is that we’ve seen this before, and there is still plenty of evidence that the next solar boom is right around the corner…

There Is a Massive Solar Boom on the Horizon

The solar industry has experienced some major breakthroughs in the past several years that make this the perfect time to invest

To start, there are more green initiatives than ever, which has been a windfall for solar companies.

And those initiatives will continue into the coming years.

Solar Estimate reports that solar energy is now the cheapest way to power a home.

According to some estimates, there were an estimated 2 million residential solar installations in the United States by the middle of 2018. This is a figure that is expected to double over just four years.

Plus, a stronger dollar environment and rising interest rates will be ideal for solar stocks.

Long term, an investment today could double or triple in value.

Knowing this, what are the best solar stocks to buy?

The market has been volatile of late, but the economy continues to do well. This is evidence for a stronger dollar in 2019 and good news for the solar industry.

When it comes to picking solar stocks, the best ones will be positioned so that they benefit from green initiatives. These are primarily companies that deal with solar installations.

As oil prices go higher, this will be an additional catalyst for these types of stocks to move up.

Here is our pick for the top penny stock to buy now in the solar sector.

This Is the Best Penny Stock to Buy Now in the Solar Space

Vivint Solar Inc. (NYSE: VSLR) is the best penny stock to own according to the Money Morning Stock VQScore™ system.

This is a solar company that was founded in 2011 that’s focused on the installation of residential, commercial, and industrial solar systems throughout the United States.

Shares of VSLR were trading at over $15 when crude oil was priced over $100 back in 2014.

Today, you can pick up the stock for just over $4 per share.

When crude prices jumped again in the first three quarters of 2018, Vivint stock peaked just below $6 per share.

Granted, the company still isn’t profitable, which explains why it trades in the penny stock range.

The good news is that its revenue continues to grow, with analysts expecting sales to hit $291 million in 2018 and reach $331 million this year. This is a growth of 14% in just one year.

Since it’s already hit $6 in the past year, it can certainly do so again. Going from $4 to $6, investors would gain 50% on this profit play.

If crude oil prices soar once again, VSLR stock could even jump as high as $10 per share with a repeat of 2014 prices. This would represent a 150% gain over today’s price.

The difference is that the company is now pulling in more revenue and edging closer to being profitable.

3 High Yield, High Growth Clean Energy Stocks to Jump on Now

Although the rate of growth has slowed, developing and operating renewable energy facilities remains on a growth trajectory. A more moderate pace will allow the industry to better sustain growth over an extended number of years. Developers of renewable energy projects use high-yield business structures as the final owners of the projects. The pass-through renewable energy companies provide the capital for development and investors receive attractive dividend streams.

The chart below recently published by the U.S. Energy Information Agency (EIA) shows the agencies short-term forecast for renewable energy supplies through 2019. You can see that new solar and wind energy sources will continue to be develop and go online at a steady pace. Longer term, there are forecasts for continue growth in renewable energy sources through 2050.

After a renewable energy project is up and running, the generated power is typically sold through long term contracts. This ensures the project will generate a return on the capital invested. There are a handful of public companies that focus on owning renewable energy assets and paying attractive dividends to investors. Here are three to consider.

NRG Yield Inc. (NYSE: NYLD) owns a nationally diverse portfolio of conventional, solar, thermal, wind, and natural gas electricity production assets. The company was spun out in 2012 by NRG Energy (NYSE: NRG), a regulated electric utility company. Renewable energy assets developed by NRG were sold to NYLD to support the growth of NYLD.

Currently, the controlling sponsor interest in NYLD is being acquired by Global Infrastructure Partners. Along with control of NYLD, Global will purchase NRG Renewables 6.4 GW project backlog. This means the NYLD double digit per year dividend growth story will continue.

The shares yield 6.5%.

Enviva Partners, LP (NYSE: EVA) is a publicly traded master limited partnership (MLP) that takes a different type of natural resource, wood fiber, and processes it into a transportable form, wood pellets. The pellets are sold on long term contracts to companies in the UK and Europe where they are burned to produce electricity.

Enviva owns six processing plants that can produce three million metric tons of pellets per year. The company also owns the marine terminals used to export pellets. Enviva has increased its distribution every quarter over the three years since its IPO.

EVA currently yields 8.2%.

Pattern Energy Group (Nasdaq: PEGI) owns and operates wind and solar power generating assets in the U.S., Canada and Japan. The company currently owns 25 facilities that can generate 2,862 MW of power. There are nine projects in the development pipeline.

A separate company, Pattern Development constructs new projects, puts them on long term power purchase contracts, and then transfers the assets to PEGI. Pattern Energy Group has an ownership stake in Pattern Development, so it also participates in the capital gains of development.

The current dividend rate has been flat for several quarters, but management expects to resume distribution growth in 2019.

PEGI yields 8.7%.

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Source: Investors Alley

3 Energy Stocks to Buy as China Cuts Solar Subsidies

There was good news recently for supporters of solar energy…

Despite tariffs imposed on imported solar panels, the United States installed more solar energy than any other source of electricity (accounting for 55% of all capacity installed) in the first quarter of 2018. According to a report from GTM Research, there were 2.5 gigawatts of solar power installed in the first quarter, a rise of 13% from the year earlier period.

This was part of the move globally toward renewable energy. In its annual review of world energy released in mid-June, BP (NYSE: BP) revealed a surprising fact – 17% of the world’s energy growth in 2017 came from renewable energy sources. That was the largest increase on record and the equivalent of the energy consumed by Sweden and Denmark in a year.

Much of this progress is the result of falling prices for solar panels, thanks to overproduction from Chinese companies. The International Energy Agency (IEA) estimates that solar power will soon be the cheapest source of new electricity in a number of countries.

However, there is a dark cloud on the horizon. As prices for solar power come down, government policymakers are moving away from subsidies for solar power projects and shifting toward auction-based systems to reward the lowest-cost producers of renewable electricity.

China’s Solar Eclipse

We saw such a move in the world’s biggest solar power market, China, announced in early June. It accounted for two-thirds of solar installations worldwide in 2017, with a 55% surge in new solar installations. So it was a bit of a shock to the industry when China said it would eliminate subsidies for most new solar projects as well as reducing feed-in tariffs.

China’s move was aimed at curbing runaway growth in the country’s solar generation, which had boomed under its generous subsidies program. The massive subsidies created a deficit of $15.6 billion in a fund set up to pay for the higher feed-in tariffs. The energy consultancy Wood Mackenzie forecast that deficit would soar to nearly $40 billion by 2020 if China had left its policy unchanged.

In addition, much of the solar power installed in China in recent years is “curtailed”, or unused, as provincial grid operators choose to use electricity from local coal-fired power plants instead. This practice is particularly prevalent in China’s far western provinces. In Xinjiang, for example, curtailment stood at more than 20% at the end of 2017. This was actually an improvement about one-third of installed capacity that stood idle the year before.

The government’s new policy sets a strict quota for solar installations and eliminates subsidies for any projects outside the quotas. And the quotas were so low that most of the quotas were already filled within the first five months of this year.

Because of China’s actions, solar installations worldwide are now expected to drop and the sudden contraction will place even more pressure on solar panel prices and on the manufacturers, who in many cases were already struggling. Wood Mackenzie expects that 20 gigawatts will be shaved off China’s solar installations this year as a result of the new policy.

That is equivalent to a fifth of last year’s overall global demand! Or as Edurne Zoco, head of solar research at IHS Market, told the Financial Times “If China really clamps down, there is no market, no combination of markets in the rest of the world that can actually compensate for that.”
The end result is that 2018 will likely be the first year in the short history of the industry that it will experience negative annual installation growth. And price-wise, Bloomberg New Energy Finance (BNEF) lowered their forecast for this year from a 25% price decline to a 34% drop for solar panels.

More on China: Buy This Export to China That Is Exempt From Tariffs

Investing in Solar

This is why you saw steep price declines of all solar power-related stocks in June. Is now a time then to look for bargains among the beaten-down solar stocks?

The answer is yes and no. Let me explain…

First of all, you must stay away from broad exposure to the industry through ETFs such as the Invesco Solar ETF (NYSE: TAN), which is down about 8.5% year-to-date. There are just too many of the lower-tier players in such a broad fund.

You will need to pick and choose, or as the old adage goes, ‘separate the wheat from the chaff’. One way to do that is to go with the beneficiaries of lower solar panel prices (despite the tariffs), the companies that install solar power.

One such example is Sunrun (Nasdaq: RUN), which is the largest residential solar power company in the United States with a 15%  market share. Its stock has soared over 122% year-to-date and is up 90% over the past year.

Since establishing its so-called ‘solar as a service’ model in 2007, Sunrun leads the industry in providing clean energy to homeowners with little to no upfront cost and at a savings to traditional electricity. The company designs, installs, finances, insures, monitors and maintains the solar panels on a homeowner’s roof, while homeowners receive predictable electricity pricing for 20 years or more.

Another factor in its favor is the fact that California passed a law that will require the installation of solar power generation of all new homes, beginning in 2020. The state’s largest solar system installer is Sunrun.

Another company to look at is one that was once considered ‘dead’ – Enphase Energy (Nasdaq: ENPH). Its semiconductor-based microinverter system converts energy at the individual solar module level and brings a system-based high-technology approach to solar energy generation, storage, control and management.

It is interesting to note that as China pulls back on solar, India is going ahead full steam. And Enphase is installing a 4.5 gigawatt solar power plant in India that will send power to Bangalore. When completed, it will be the company’s largest microinverter-based solar plant installation.

Its stock has seen a Lazarus-like comeback, soaring over 700% in the past year and it is up more than 182% year-to-date.

Finally, there is my favorite and a member of the Growth Stock Advisor portfolio, SolarEdge Technologies (Nasdaq: SEDG).

The company has invented an intelligent inverter solution that has changed the way power is harvested and managed in a solar photovoltaic (PV) system. The SolarEdge DC optimized inverter system maximizes power generation at the individual PV module-level while lowering the cost of energy produced by the solar PV system. Since beginning commercial shipments in 2010, SolarEdge has shipped over 6.7 Gigawatts of its DC optimized inverter systems and its products have been installed in solar PV systems in 120 countries.

I believe its DC voltage optimizer strategy will win more and more market share versus the more expensive micro-inverter strategy used by their rivals. Despite its recent pullback, the stock is still up 25% year-to-date and 129% over the past year.

Stocks like these three will likely survive and even thrive, despite tariffs and China’s cutbacks on its subsidies for solar, as the number of competitors dwindle.

Two Stocks to Buy and One to Sell with Oil Prices Climbing Again

President Trump is at it again… on June 13, he again blamed OPEC for the rising price of oil. In a tweet he said, “Oil prices are too high, OPEC is at it again. Not good!”. This follows a similar tweet on April 20 when President Trump said “oil prices are artificially Very High” due to the supply curbs by OPEC and its allies.

Trump’s tweet comes ahead of a meeting next week of oil ministers from OPEC and Russia who are under pressure from the U.S. to raise output by at least one million barrels of oil a day, after more than a year of enacting production cuts.

So is OPEC to blame? Yes and no. There are other factors at play here such as a robust global economy that has driven up demand for oil. For example, if you look at just China and India, they have imported 962,000 barrels per day more in the first five months of 2018 than in the same period last year.

But the real problem is on the supply side, with President’s Trump’s imposition of new sanctions on Iran exacerbating an already bad situation. Let me explain…

Oil Supply Constraints

I found it interesting that well-known hedge fund manager Pierre Andurand responded to President Trump’s tweet saying an oil price spike is coming because the number of countries with excess production capacity are few. “OPEC has the lowest spare capacity ever right now. There is going to be a real issue. Prices will be above $150 in less than 2 years. Eventually higher prices will bring more supply. But right now [there is] too little supply coming over the next few years despite US supply growth,” he tweeted.

Andurand is someone to listen to in the oil market… he has returned to his investors a cumulative 560% since 2008. But is he just talking his ‘book’? Last year, he began accumulating positions betting on a return to $100 a barrel oil.

Related: Big Oil Bets Big on Big Data to Increase Revenues and Cut Costs

Unfortunately, for us consumers of oil Andurand is largely correct…

First, supply and demand right now in the oil market are roughly in balance at about 100 million barrels a day. BUT the so-called shock absorbers that would cushion any interruption in supply or spike in demand are at dangerously low levels.

Commercial stocks in the world’s major economies currently stand at 2.8 billion barrels, composed of crude (1.1 billion barrels), other liquids (300 million barrels) and refined products (1.4 billion barrels). The level of these inventories is already 27 million barrels below the five-year average, according to the International Energy Agency.

Then you must consider that the vast majority of inventories are held for operational reasons to ensure the uninterrupted flow of oil from wellhead to final customers. Global oil consumption has increased by more than 6 million barrels per day over the past five years, so other things being equal, the oil industry will want to hold more inventories for operational reasons. That leaves only a small percentage, generally less than 15%, actually available to act as a shock absorber.

For the last four decades, the oil industry’s second line of defense has been the existence of significant volumes of spare production capacity. But today, nearly all spare production capacity is held by Saudi Arabia, with smaller volumes held by Russia, Kuwait and the United Arab Emirates. The other oil producers have no spare capacity.

Add it up and OPEC’s spare capacity currently amounts to less than 2 million barrels per day, according to the U.S. Energy Information Administration. That is not good when you consider that in its latest oil market update, the International Energy Agency (IEA) said that it is possible that exports from Venezuela and Iran could decline by as much as 1.5 million barrels per day or about 30% of their current output by the end of 2019. Iran sanctions may take nearly a million barrels a day off the market and with the sorry state of Venezuela, oil production there may totally collapse.

To compensate for that lost output, Saudi Arabia and the others could boost production by somewhat over 1 million barrels per day, according to the IEA. But if that happens, OPEC spare capacity will be reduced to less than 1 million barrels per day – the lowest level since 2004!

And even though US production from its shale fields is on the rise, keep in mind that most U.S. refineries cannot handle that type of light sweet crude and run on the heavier crude such as from Saudi Arabia. And pipeline constraints mean much of that shale oil cannot reach the marketplace.

Oil Price Rise Investments

So how can you profit from this, or at least, make enough money to offset what will surely be rising gasoline prices?

Keep in mind that many oil producers are generating more free cash at current prices than they did at $100 per barrel before the market crashed four years ago. This is because of deep cost cuts during the downturn, with average operating expenses per barrel down by a third and development costs halved thanks to cost-cutting since 2014. That means most oil majors can now cover dividends and capital expenditure at prices around $50 per barrel, meaning that, at anything above that level, they are very profitable.

Of the larger oil companies, my favorite is Norway’s Equinor ASA (NYSE: EQNR), which recently changed its name from Statoil to emphasize its long-term move pivot away from oil and toward alternative energy.

But for now, the company is enjoying the benefits of higher oil prices it is earning (earnings per share were up 24% in 2017) from its rich North Sea oil holdings, including the massive Johan Sverdrup oil field. It’s stock up an impressive 26% year-to-date.

More Reading: Buy This Commodity Set to Become More Precious Than Oil

In its latest earnings report, the company lifted its adjusted net earnings to $1.47 billion, from $1.11 billion in the same period last year. Analysts had, on average, expected $1.61 billion. Cash flow from operations increased by 20% to $7.1 billion.

Here in the U.S. I like ConocoPhillips (NYSE: COP), which is also up 26% year-to-date. This should continue as the company expects compound annual growth rate (CAGR) of production through 2022 of 22%. Not surprising when you consider that the bulk of the acreage it holds in the Eagle Ford shake and Bakken shale are rich in oil. Another plus is that on February 1, ConocoPhillips entered into a deal with AnadarkoPetroleum to buy a 22% stake in the Western North Slope of Alaska. The company will also acquire the stake of Anadarko in the Alpine pipeline. Once the deal concludes, ConocoPhillips’ cash flow will rise from incremental production increases.

But for every winner, there is a loser. And the biggest loser, if oil prices continue to rise, is the airline industry. Overall, the International Air Transport Association says it expects net income of $33.8 billion for global airlines this year, down 12% from its December forecast.

Jet fuel represents a third of airlines’ expenses and industry executives predict costs will be passed on to consumers via higher fares. If I had to pick one loser among the airlines, it would be American Airlines (Nasdaq: AAL), which has added fuel costs to its other problems (overcapacity, etc.)

American lowered its profit outlook for 2018 due to an expected $2.3 billion rise in fuel costs this year. It unfortunately had listened to the short-term Wall Street focus… why waste money hedging – everyone ‘knows’ oil is headed lower, raise your profits by not hedging. Its stock is down 22% over the past three months.

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10 Energy Stocks That Are Leaking

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There are two phrases that can make investing seem a bit easier than it actually is: “The trend is your friend” and “A rising tide raises all boats.”

A perfect example to how these can distort your successful investing is the energy sector.

Energy prices are rising for a variety of reasons. One is OPEC nations are reducing supply to raise prices — remember, Saudi Arabia is funding a war in Yemen and Iran is trying to keep its economy going.

Two, the global economy is recovering, so the engines of growth are cranking up, so demand is growing. Crude oil — including West Texas Intermediate (WTI) — is sitting around $68 a barrel, with Brent around $73. Those are healthy levels compared to the sub-$50 level it was at for years.

But this trend isn’t necessarily your friend. And this rising tide won’t lift all boats in the energy patch; some are taking on water fast.

Below are 10 energy stocks that are leaking rather than sailing to open water.

Energy Stocks to Sell: Williams Partners (WPZ)

Williams Partners LP (NYSE:WPZ) is a master limited partnership that operates in the U.S. natural gas business. It operates natural gas — and natural gas liquids (NGLs) — pipelines and fracking in the Utica and Marcellus shales as well as around the Gulf of Mexico (Texas, Louisiana, Mississippi, Alabama).

It has been a tough business for a while now, as NGL pricing is very cyclical, and operations are also tied closely with economic growth. But as that trouble gets put behind WPZ, it faces a new challenge — the debt it has racked up in the meantime.

Also, in March the Federal Energy Regulatory Committee has taken away MLPs’ income tax break for cost of service rates. Part of MLPs’ attraction has been their tax-favored status.

WPZ recently sold off an NGL subsidiary to free up cash to pay down some of its debt, but that may not be enough.

There’s no reason to hold and hope — things could get ugly here.

Energy Stocks to Sell: Energy XXI Gulf Coast (EGC)

Energy Stocks to Sell: Energy XXI Gulf Coast (EGC)

Source: Shutterstock

Energy XXI Gulf Coast Inc (NYSE:EGC) is a small exploration and production (E&P) company that operates offshore and onshore in the Gulf Coast.

Low prices forced the company into restructuring, which took all its shareholders down with it. That left them with a bad taste in their mouths as EGC has now reemerged and is trying to make up for lost time as prices for oil and natural gas begin to rise.

But EGC stock has been volatile and year to date is merely keeping its head above water.

EGC remains in a tenuous position and there’s no guarantee that a rebounding energy market will save it. What’s more, if the market reverses, EGC will be one of the first to suffer.

Energy Stocks to Sell: Advantage Oil & Gas (AAV)

Energy Stocks to Sell: Advantage Oil & Gas (AAV)

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Advantage Oil and Gas Ltd. (NYSE:AAV) is a Canadian E&P firm from Alberta, Canada that focuses on natural gas and NGLs.

At this point, AAV stock is off 24% year to date because gas prices remain low, which has meant AAV has had to reduce production. It also has tried to ramp up NGL production to compensate, but this isn’t as easy as flipping a switch.

Earlier this month, it updated it 2018 guidance and it wasn’t good. Because it’s fiddling with production, costs are rising, which will mean margins will be shrinking. That’s never a good thing.

The only real hope is rising gas prices or a huge upturn in NGL demand. And that’s not worth betting on.

Energy Stocks to Sell: NuStar Energy (NS)

Energy Stocks to Sell: NuStar Energy (NS)

Source: Shutterstock

NuStar Energy L.P. (NYSE:NS) is off more than 56% in the past year. It’s a pipeline and storage company based out of San Antonio.

The best news for NS, as it noted in its Q1 earnings statement released earlier this week, was that insurance will pay for a majority of damage done to its facilities by hurricanes last year.

Aside from that (and a whopping current dividend), there’s more risk than attraction here — the new FERC ruling getting rid of an important tax break for the industry; NS high level of debt; and increasing competition from other players are all making recovery difficult.

It has also delivered half the return on equity of the industry average (10%) in the past year. That’s a long road back, and there’s no point in joining its journey until its further along.

Energy Stocks to Sell: Contango (MCF)

Energy Stocks to Sell: Contango (MCF)

Source: Shutterstock

Contango Oil & Gas Co (NYSEAMERICAN:MCF) had one piece of good news in its Q4 earnings released in early March — it lost less money in the quarter than it had the year before.

But aside from that, there wasn’t much to cheer about for the E&P player that works offshore in the Gulf off of Texas as well as in the Rocky Mountains.

MCF stock is off more than 50% over the past year, and this knife my still be falling. Onshore fracking is cheaper than offshore drilling and natural gas prices aren’t moving.

MCF isn’t a big enough operation to shunt production of one resource for another. So, while it’s true NGL prices are rising, it won’t do much for MCF’s bottom line.

Energy Stocks to Sell: Westmoreland Resource Partners (WMLP)

Energy Stocks to Sell: Westmoreland Resource Partners (WMLP)

Source: Shutterstock

Westmoreland Resource Partners LP(NYSE:WMLP) is an MLP not in the oil and gas space, but in the coal sector. It is a surface miner that produces thermal coal.

While there remains demand for coal as an energy resource, this isn’t exactly a growth industry. And when you add to that the FERC ruling to limit tax advantages of MLPs, you start with two strikes for this stock.

So, what did its Q4 numbers reveal earlier this month? Strike three. Earnings were off 25% for the quarter and 13% for the year. While coal demand was up 18% in the U.S., it was off 41% for Canada.

There’s no doubt that coal will be a valuable resource for years to come, but it’s not the core energy source at this point. And betting on this niche in transition when there are so many better choices it far more risk than your likely reward is worth.

Energy Stocks to Sell: Hess Midstream Partners (HESM)

Hess Midstream Partners LP (NYSE:HESM) is a midstream player in the integrated Hess petroleum organization. It’s not unusual for integrated energy companies to spin off various upstream and downstream units to leverage performance in good times and deflect trouble in bad.

HESM is set up as an MLP, which means stockholders (technically called “unitholders”) are essentially business partners that receive their profits in the form of dividends. Right now, HESM stock is delivering a 6.3% dividend.

That may sound tantalizing, but when you realize HESM stock is trading nearly 20% off for the last year, it sounds less interesting, hopefully.

It released Q1 earnings this week and they weren’t bad … but they also weren’t good enough to have your money sit on the fence. Not even 6% is worth the risk at this point.

Energy Stocks to Sell: Ultrapar Participacoes (UGP)

Ultrapar Participacoes SA (ADR) (NYSE:UGP) is a Brazilian energy firm that focuses on storage, distribution and chemicals.

Basically the firm uses these imported energy products and sells them to the various markets that use oil, liquified petroleum gas (LPG) and NGLs for their products.

It’s a solid business but UGP stock is off 18% in the past year.

There are two key issues here. First, as energy prices rise, so will its inputs for selling NGLs and other variants. That means lower margins since not all the price increases will be distributed to vendors and customers.

Second, Brazil is an emerging economy that runs faster in both directions than developed nations. If the broader economy stumbles, it will hit Brazil’s economy much harder.

Given the volatility that’s already in place, there’s no reason to look for even more.

Energy Stocks to Sell: Camber Energy (CEI)

Camber Energy Inc (NYSE:CEI) is a small E&P that works mainly out of Texas and Oklahoma.

At this point the stock is off about 95% in the past year, so there isn’t much left of this company, at least unless it gets more oil out of the ground and to market.

Last month, it received another $1 million in funding from its sixth funding tranche. Basically that means it’s looking for more money to fund operations but isn’t in a position to go to a bank for funding. It’s going through investors.

The problem with this way of funding the company is, it dilutes the shares that current shareholders are holding. There’s nothing wrong with this kind of funding; small firms do it all the time.

The problem is, if you’re an investor while CEI is raising capital, there’s no guarantee your stock will be fully valued.

Energy Stocks to Sell: Ultra Petroleum (UPL)

Ultra Petroleum Corp (NADSAQ:UPL) is an independent E&P that owns properties in Wyoming and Utah.

In the past three years the stock is off a fulsome 82%. The fact that it has only two properties to seek its fortune is certainly a hindrance.

However, the one thing it has going for it is, UPL has been around since 1979, so it has seen its share of boom and bust cycles and has endured, if not thrived. It also has a $1.4 billion line of credit it can tap into, which is better than diluting shareholders’ positions by raising money through issuing more stock.

But that is little reason to invest.

If the big industrial firms are cautious on economic growth in coming quarters, then looking to buy beaten-down small-cap energy companies isn’t a good choice right now.

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Source: Investor Place

Sell These 3 Utility Stocks Being Squeezed at Both Ends

It strikes me, at times, how little humankind has changed over the centuries. The ancient Greeks waited for answers to the most pertinent questions of their day from the Oracle at Delphi – a high priestess that supposedly spoke to the god Apollo.

Today, Wall Street also waits for word from on high as to the future course of markets from the Federal Reserve. The new Chairman (or is it Oracle) Jay Powell will explain to the public why the Fed deemed it is necessary to raise the federal funds interest rates by a quarter percentage point again, to the range of 1.50% to 1.75%.

Market pundits will attempt to interpret exactly what the Fed’s future plans are by looking at the so-called dot plots to see if three or four interest rate hikes (including this one in March) are in Wall Street’s future. That ‘analysis’ will lead to classic, almost Pavlovian, response by some market participants to immediately sell some sectors in response to future higher rates.

One type of stock that will be sold is the so-called dividend aristocrats. The reasoning is straightforward… in the three years through 2017, the average yield on the dividend aristocrats index was 0.4% higher than 10-year Treasury yields, according to Bloomberg data. Now, the average dividend aristocrat offers a yield of 2.3% versus the more than 2.8% yield on the 10-year Treasury.

Utilities: Bond Proxies

One sector that has consistently paid higher dividends has been utilities. These companies make much of their income from regulated assets which means that their earnings and dividend payments are steadier and more reliable. That makes their shares behave more like bonds. In other words, they are bond proxies.

But now that ability to attract investors with higher dividends  is under pressure thanks to the Fed raising rates, making government bonds more competitive among income-seeking investors. In a Pavlovian-type response, JPMorgan in February came out with a list of 50 bond proxies that they put on an avoid list for investors. More than half of the list consisted of utility firms.

However, the current harsh reality is that U.S. utilities’ finances are under pressure from both higher rates and the effects of the recently-passed tax law. The sub-sector most under pressure is the power sector. Let me explain…

Power Sector Punishment

First of all, these companies are in a no-growth environment. U.S. demand for electricity is stagnating: total power consumption was slightly lower last year than in 2010, according to the Energy Information Administration. There has also been a major shift in utilities’ fuel mix. Since 2010, the proportion of U.S. electricity generated by coal-fired plants has dropped from 45% to 30%, while the proportion from natural gas rose from 24% to 32% and the proportion from renewables rose from 4% to 10%.

But the U.S. power sector has been doing fine because two of its crucial inputs were dirt cheap: natural gas and money (thanks to near zero interest rates). The utilities need money to constantly upkeep and upgrade their power infrastructure. But now the Fed’s policy change is changing that dynamic and raising their costs.

Rising rates aren’t good news for the utilities sector because many of the companies are heavily indebted. The utilities in the S&P 500 have debt with an average maturity of 14.5 years, according to JPMorgan. And while only 19% of their debt matures by 2020, over time, rising interest rates will put upward pressure on their costs. In their regulated businesses, the utilities should be able to recover much of their increased costs from their customers. But the more companies try to raise rates, the higher the risk that they will get push back from various states’ regulators.

The power companies’ problems are being compounded by the recent changes in the tax laws. As you can imagine, the changes are very complex and will affect different companies in different ways.

However, one common effect is that it will squeeze utilities’ cash flows. The corporate tax rate has been cut from 35% to 21%. But it is believed that states’ regulators will insist that customers benefit from that reduction with lower bills. Eventually, the power companies may be able to recoup the lost income. But in the short run this loss of revenue means that cash flows will be squeezed. This may even result in some utilities’ credit ratings being cut.

Some Companies Will Cope

Management at some utility firms are already taking action in order to alleviate this expected loss in their cash flow. They have decided to issue more stock (diluting existing shareholders) and cut back on capital expenditures.

One of the largest utilities, Duke Energy (NYSE: DUK), announced in February that it planned to raise $2 billion from selling shares this year and would also cut its five-year capital spending plan by $1 billion. Its CEO, Lynn Good, said the share sale was needed “to maintain the strength of our balance sheet”.

Another large utility, First Energy (NYSE: FE), announced in January a $2.5 billion investment in common and convertible preferred shares (again diluting existing investors), from a number of institutional investors including Elliott Management and GIC. The funds would be used to pay off debt, contribute to its pension fund, and to “strengthen the company’s investment-grade balance sheet”.

These type of actions should help secure these companies’ future. But it will hold back their stock performance over the short- to intermediate-term, as well as the performance of a broad utilities’ ETF such as the Utilities Select Sector SPDR Fund (NYSE: XLU), which is down 4.62% year-to-date.

For now, I would avoid the entire utility sector. But if you have a high risk tolerance, you may want to consider the ProShares Ultra Short Utilities ETF (NYSE: SDP). This ETF seeks a return that is double the inverse of the return on the Dow Jones U.S. Utilities Index. This ETF is up more than 7% year-to-date.

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This Hated Commodity Could Make Huge Gains in 2018

The forecast showed an extra 20 million pounds of uranium production for 2018 … with no buyers. As you can imagine, the uranium price plummeted.

It hit its lowest price in October 2016 at $18.75 per pound. That touched a 13-year low price.

The downtrend began back in 2011. The uranium price peaked at $72.50 per pound in January 2011. It fell steadily since then, down a total of 74%.

This is a shocking result for an energy source that many embraced as a “green” rescue from hydrocarbons just a few years ago. Nuclear power creates safe, carbon-free energy.

The problem is, it can cause huge disasters. That’s what we discovered when the Fukushima disaster struck Japan.

The Demise of Nuclear Power

An earthquake and tsunami damaged the Fukushima Daiichi nuclear power plant in March 2011. The earthquake damaged a reactor. Then the tsunami inundated the area, destroying vital backup generators.

Without the backup power, cooling water couldn’t get into the plant. That caused a runaway reaction, a meltdown — the greatest fear for all nuclear power plant operators.

A series of human errors compounded the damage. The operator, Tokyo Electric Power Company, was completely unprepared for the situation.

The result killed the nuclear power industry.

Fukushima turned the world against nuclear power. Germany shut down all its reactors in response. Demand for uranium fell, and the uranium price collapsed.

This finally led major uranium producer Cameco Corp. (NYSE: CCJ) to cut production in early November 2017. The company’s earnings fell and fell. It struggled to maintain profitability. It finally announced that it would suspend operations at its flagship McArthur River mine for 10 months.

Cameco’s decision cut the surplus to just 5 million pounds … and then the unthinkable happened: The world’s largest uranium producer followed suit. Kazakhstan’s state-owned uranium miner Kazatomprom cut production by 20% for the next three years.

The result could be a massive bull market in uranium.

The Uranium Price and A Windfall for Uranium Producers

Shares of Uranium Participation Corp. (Toronto: U), which hold physical uranium for investment, soared in response. As you can see from the chart below, shares are up 30% in just a month and a half.

Kazakhstan’s state-owned uranium miner Kazatomprom cut production by 20% for the next three years.The result could be a massive boom for the uranium price.

Shares of uranium companies surged too. However, this is just the beginning. Analysts that cover the uranium sector believe these cuts could add $30 per pound to the price of uranium. That’s more than double the current spot price.

For uranium producers, this will be a windfall. Companies like Cameco and Ur-Energy Inc. (Toronto: URE) will see revenue and earnings rocket higher.

This appears to be great news for the uranium sector. It’s a story we’ll continue to watch in 2018.

Good investing,

Matt Badiali

Editor, Real Wealth Strategist

Right now, an untapped ocean of energy—found underneath all 50 states—is about to transform the world’s energy industry. In fact, there’s enough of this energy in the first six miles of the earth’s crust to power the United States for the next 30,000 years. Wanna know this untapped energy source? Learn NOW! And as companies rush to extract this energy from the ground, they’ll need the help of one Midwestern company’s technology to make use of it. This is your chance to take advantage of John D. Rockefeller-type fortunes. Early Bird Gets The Worm...

2 New Mega Trends Coming up to Bat

Every holiday season I’m reminded of my first few years living as an immigrant in the United States.

You see, when I first came to this country, I’d never heard of Thanksgiving Day. In fact, I spent the first few years that I lived here believing that Thanksgiving was a national holiday dedicated to appreciating whatever you were most thankful for in your life.

And while I would eventually go on to learn all about American history and the story of the harvest festival, this time of year still makes me humble. It forces me to take a step back and think about what I’m most grateful for.

I would encourage you to do the same this holiday season. The markets are now closed in observance of Thanksgiving, so take some well-deserved time this weekend to enjoy the presence of your loved ones.

There will be plenty of time to worry about the markets next week, so I’m going to use this article as an opportunity to tell you about two brand-new mega trends I’ll be looking to add to my flagship newsletter, Profits Unlimited, in 2018.

Blockchain Is Creating A Truly Decentralized Economy

The first of these new themes is going to be blockchain as it relates to finance.

 You’ve probably heard of blockchain before, but in case you have only a loose understanding of the term, I’ll give you a brief explanation.

Blockchain is an online global ledger that anyone can use, but that also doesn’t exist in any master location. Think of it like an Excel spreadsheet that exists on multiple computers at the same time and that automatically updates itself every 10 minutes.

The decentralization aspect of this ledger makes it impossible for hackers to encrypt it and also makes it communal, because anyone who has an internet connection and who wants the database can do so.

This technology has turned the financial industry on its head, because for the first time in history, two different parties can come together to make a safe exchange without having to involve intermediaries, such as banks, rating agencies or bodies of government.

Add in the fact that our traditional banking system is overrun with fraud, additional fees and lots of paperwork, and you can immediately see why more and more people are turning to blockchain to make their transactions.

Given how completely disruptive this technology is, it’s no surprise that the global banking community is scrambling to implement blockchain technology into its existing infrastructure. But banks aren’t the only entities about to be disrupted by blockchain.

Imagine a truly decentralized economy where the middleman could be cut out of all transactions. It would affect every single industry in the world, from retail to transportation, to crowdfunding initiatives.

This is the kind of game-changing technology I want to be a part of, because the returns it could bring early investors are potentially limitless.

Ridiculous Amounts of Energy

Having said that, there is one major drawback to blockchain that also affects the Internet of Things mega trend. Both emerging industries require ridiculous amounts of energy output.

In fact, a 2014 study by researchers Karl J. O’Dwyer and David Malone showed that the bitcoin network alone was likely to take up as much electricity consumption as the entire country of Ireland. So, imagine how much energy we would need if all the banks in the world started to move toward digital currencies just to keep up with their competition.

That’s just not sustainable with our current energy grid, and it’s the reason why I’ll be looking to bring storable, renewable, natural energy-solution companies into my Profits Unlimited portfolio next year.

I don’t want to give anything away just yet, but between my current mega trends and the two new themes I’m beginning to track, I can promise you that next year will be a very exciting time to be a Profits Unlimited reader.

If you’d like to get in on the action and join me as I unearth companies taking advantage of these brand-new themes.

I’m going to end there for this week, but from my family to yours, I wish you the happiest holiday season.


Paul Mampilly

Editor, Profits UnlimitedRight now, an untapped ocean of energy—found underneath all 50 states—is about to transform the world’s energy industry. In fact, there’s enough of this energy in the first six miles of the earth’s crust to power the United States for the next 30,000 years. Wanna know this untapped energy source? Learn NOW! And as companies rush to extract this energy from the ground, they’ll need the help of one Midwestern company’s technology to make use of it. This is your chance to take advantage of John D. Rockefeller-type fortunes. Early Bird Gets The Worm...