Future Tense for MLPs

In This Issue: Passing the Drug Test Future Tense for MLPs Triage for Dividend Casualties Profit from a Hugely Hyped $14 Trillion Market A massive wave of change is about to hit the tech world. It's called the Internet of Things. If you haven't heard about it, it's simply the idea that virtually every device made from here on out will connect to the Internet. That includes things like your car, your refrigerator, and even your watch. If you missed the last round of enormous winners the Internet churned out, I have good news. I've found a tiny $5 company that's poised to ride this wave and deliver gains of up to 2,042%… starting tomorrow. Click here for the lucrative details. Passing the Drug Test 12/16/2014 By Thomas Scarlett The stock market has shown unusual volatility lately, as the rapidly falling price of oil, while very good for American consumers, has raised concerns about the possibility of greater global instability. At a time like this, some companies are more of a "sure thing" than others. Two trends that are not going anywhere are the aging of the U.S. population and the increasing range and availability of pharmaceuticals. One company that is an excellent play on both trends in Omnicare (NYSE: OCR). Omnicareis one of the leaders in providing pharmaceutical services to nursing homes and other long-term care facilities. This is a rapidly expanding field, and Omnicare's most recent numbers demonstrate that it may be moving into the dominant position in this sector. Certain key technical indicators are quite positive on this stock, including increased volume of shares traded, purchases by insiders, and a recent upswing that has carried the share price above previous resistance levels. Omnicare recently announced an increase to its quarterly dividend, demonstrating the company's continued focus on returning value to its stockholders. Omnicare's Board of Directors approved a quarterly cash dividend of $0.22 per share on the Company's common stock, reflecting a 10% increase over the previous quarterly cash dividend rate of $0.20 per share. "We are pleased to announce our fifth consecutive annual increase in our quarterly cash dividend," said Nitin Sahney, President and Chief Executive Officer. "This 10% increase in our dividend is a reflection of our solid financial performance and our ongoing efforts to redeploy capital to the benefit of our investors." The stock dropped precipitously back in February when its fourth-quarter earnings report was considered disappointing by some analysts. But the company has made steady progress since then, both in terms of its underlying financials and the recovery of the stock price. We think it still has considerable upside potential, though. Omnicare is a Fortune 500 company based in Cincinnati. It specializes in the drugs and related services that are used by older patients with chronic conditions. The firm has well-established relationships with several of the country's top health insurers, which allows it to offer its health solutions to many millions of potential customers. For example, Omnicare has teamed up with Inland Empire Health Plan to provide Medication Therapy Management (MTM) services for the plan's members who reside in long-term care (LTC) facilities. Omnicare already MTM services for WellCare Health, among many other health plans. The MTM connection is significant, because as of this year the Affordable Care Act requires prescription drug plan sponsors to offer MTM services to eligible plan members that include, at a minimum, an annual Comprehensive Medication Review (CMR) that must be furnished person-to-person or using tele-health technologies. The review must include a review of the plan member's medications, which may result in the creation of a medication action plan with a written or printed summary of the results of the review provided to the targeted plan member. "We are pleased to enter into this clinical partnership with Inland Empire Health Plan on behalf of its beneficiaries," said Dr. Gary Erwin, Omnicare Senior Vice President of Clinical Services. "As the healthcare reimbursement environment becomes more outcomes-based, Omnicare is uniquely positioned to collaborate with Medicare Part D plans to provide MTM and other clinical consultative services designed to enhance the quality of care for the senior population." "Omnicare's clinical pharmacists have unparalleled insight into geriatric care, supported by a comprehensive understanding of beneficiary clinical status, existing treatment goals and care plans," continued Dr. Erwin. "As the Centers for Medicare and Medicaid Services (CMS) expand eligibility in 2015, Omnicare is poised to further leverage its clinical capabilities to the benefit of health plans, and most importantly, patients." Analysts have noted that insider purchases of the stock have been on the rise this year. This indicates a certain confidence in the future among those best positioned to know. The firm's most recent earnings report was issued in October, and was quite positive. The report showed a net sales increase of 6.1% to $1.6 billion, and adjusted cash earnings per share from continuing operations that went 6.8% higher to 94 cents per share. "We are pleased with our solid quarterly financial performance," said Sahney. "Throughout the year, we have continued our progress in executing our long-term strategic plan through an ongoing focus on growing our core platforms and demonstrating discipline within our operations." Health care provision for geriatric patients will only expand in the coming years, and Omnicare is in an enviable market position in this market segment. The stock is a buy up to 76. Tom Scarlett is an investment analyst with Personal Finance. What Country Has the Fastest Mobile Internet Speed? It's not the U.S. It's not China, Japan or South Korea. It's also not in Europe, Africa, Asia, North America or South America. And the incredible part is that this country just got faster. On November 3, 2014, the country with the fastest mobile Internet in the world just got several times faster. The rollout is beginning now. It's so fast that you don't even need any other kind of Internet. Mobile cards can handle home computers and office computers, as well as a whole new quantum leap forward in "cloud" computing. We're already invested (with gains of 70% since 2012) – but it's not too late to get in on the triple-digit upside. The future is here… Click now to find out where. Future Tense for MLPs 12/15/2014 By Robert Rapier It's certainly been an exciting year for MLPs, much more so than we all would have wished. After rallying to record highs as summer waned and holding up well in the early stages of the plunge in oil prices, most master limited partnerships have finally succumbed to tax-loss selling and buyers' severe allergy to anything labeled "energy." What might 2015 bring? I've got a handful of predictions that have as good a chance as anyone's of looking silly by January 15. 1. You Can't Always Get What You Want The betting here is on a recovery that stops well short of the past year's records. Oil prices should by the coming summer find support from capital spending cuts by shale drillers, supply worries as exporters face economic pain and political instability and possibly a pickup in emerging markets demand. That should be enough to reassure investors about the staying power of most midstream services providers. But the shale boom hype that surrounded the summer highs isn't coming back anytime soon. The Alerian MLP Index finishes 2015 at 490, delivering an annual total return of 15%. 2. Playing With Fire Linn Energy (NASDAQ: LINE) and its $12 billion mountain of debt beneath the melting snowcap of $4 billion in equity never get back to $20 per unit without a reverse split. Linn's 10-year note maturing in 2021 traded at 76% of face value and an effective yield of 13.7% on Dec. 12, the day it was named one of energy's 10 weakest credits by the credit research firm CreditSights. With stubbornly high yields shutting it out of the credit and equity funding markets, Linn could continue to trade more of its most prospective acreage for current production. But with the partnership's utility to Wall Street ebbing, at least two of the 14 analysts following LINE will get up the nerve to rate it something worse than Hold. And savvy investors not named Leon Cooperman will continue to stay away. Source:FINRA/Morningstar 3. You Can Lean on Me High-growth, low-yield MLPs like Phillips 66 Partners (NYSE: PSXP) and EQT Midstream Partners (NYSE: EQM) lag in 2015 as investors become less willing to extrapolate years into the future even in such promising sectors as chemicals logistics and natural gas. Diversified and higher yielding workhorses like Energy Transfer Partners (NYSE: ETP) should fare better as the market prioritizes income over growth. 4. Wild Horses Mergers roll on as industry giants seek scale and depreciation write-offs. Kinder Morgan (NYSE: KMI) embarks on its hotly anticipated buyout spree by scooping up Targa Resources (NYSE: TRGP) for a little less than Energy Transfer offered last year. The latter expands its filling stations empire with a takeover of Murphy USA(NYSE: MUSA). Loews sells Boardwalk (NYSE: BWP) to Phillips 66 (NYSE: PSX). 5. Gimme Shelter The first containerboard producer announces an initial public offering of an affiliated MLP, while railroads are advised to set up partnerships specializing in oil and coal transportation. More general partners try to arrange buyouts by the partnerships they manage. This article originally appeared in the MLP Investing Insider column. Never miss an issue. Sign up to receive MLP Investing Insider by email. This Isn't Supposed to Happen… Our economy periodically falls into recession. But it always bounces back strongly within a year or two. Not this time. Our government's economic decisions have been so bad that five years after the recession began, a decent recovery can't get off the ground. If you're sick of waiting for things to get better, do this instead. Triage for Dividend Casualties 12/12/2014 By Ari Charney When we went to press with the latest issue of Canadian Edge, the first oil and gas producer in our coverage universe to cut its dividend was Canadian Oil Sands Ltd (TSX: COS, OTC: COSWF), whose hand was forced in part due to its failure to hedge its production. On Monday, small-cap Trilogy Energy's (TSX: TET, OTC: TETZF) dividend was the latest casualty of the bear market in crude prices. But the most painful cut for us was Baytex Energy Corp's (TSX: BTE, NYSE: BTE) announcement that it would be cutting its monthly dividend to CAD0.10 per share from CAD0.24 per share, effective with the January payout. Although that news is certainly disappointing, Baytex has cut its dividend in the past when faced with extreme downward volatility in oil prices, so this wasn't entirely unexpected. Indeed, in our December issue, we observed that the company was the most vulnerable among our six favorite Canadian energy exploration and production (E&P) companies. But while this latest move means lower income as a shareholder in the near term, it also helps the company preserve capital for the long term. Though Baytex had been paying out a large percentage of its earnings to shareholders, in other respects it tends to be somewhat more conservative than its peers when it comes to managing its dividend, with an emphasis on maintaining its payout from current cash flows rather than artificially supporting it via debt or equity issuance like some other high-yield companies do. Though it could be argued that such conservatism should probably extend to the payout ratio during both good times and bad times, we'd rather the company keep a solid balance sheet than engage in financial engineering to support an unsustainable payout. The stock actually got a brief bump as a result of this news, so that suggests investors saw this as a step in the right direction, despite the pain of a lower payout. Like many of its E&P peers, Baytex also announced a reduction in its capital budget for 2015, with plans to pare it by 30% to realign spending with the economics of lower crude prices. About 75% of this spending will be allocated toward the Eagle Ford, which makes sense given the better economics of this play. Baytex's Eagle Ford play accounted for 37.6% of third-quarter production, or about 34,000 barrels of oil equivalent per day (BOE/D), with a breakeven threshold of USD49 per BOE/D. The company didn't offer breakeven analysis of its other plays, though presumably the Eagle Ford offers better economics than its heavy-oil Peace River and Lloydminster plays. The last time Baytex cut its dividend was during the Great Recession, when its monthly payout bottomed at CAD0.12 per share after briefly reaching a high of CAD0.25 per share in 2008. The company began boosting its dividend again exactly a year following the first cut as oil prices recovered. Let's hope the lower level of the payout is similarly short-lived this time around. The "In Focus" feature in our latest issue focused on the hedging programs of our favorite E&Ps. That will be a major factor in each company's ability to weather prices in the near term without cutting their dividends. As noted earlier, companies are also announcing reductions in next year's capital budgets in order to preserve capital. It's too soon to tell whether that will translate into lower production overall, which would help bring supply and demand back into balance. It may just mean a lower rate in the growth of production. Over the medium term, as the current hedges in place roll off the books, the economics of each company's major plays will be a bigger factor. Not every company offers breakeven thresholds for its major plays. But we'll review a couple that do. Investors should also keep in mind that breakeven prices will change over time, particularly as the cost of labor and services will also eventually decline in tandem with commodities prices. Indeed, the high price of energy until recently also served to inflate the prices of everything that helped produce it, making future production from some plays uneconomic even before oil started correcting. According to Crescent Point Energy's (TSX: CPG, NYSE: CPG) recent management presentation, the break-even points for operations in its six major plays range between USD40 per barrel of North American benchmark West Texas Intermediate crude (WTI) to just below USD60 per barrel of WTI, with a majority of third-quarter production coming from plays that are toward the lower end of that range. ARC Resources (TSX: ARX, OTC: AETUF) reports that breakeven thresholds range from CAD40 per barrel of oil to CAD45 per barrel of oil and average CAD1.33 per thousand cubic feet (Mcf) of natural gas in its Montney, Pembina and Southeast Saskatchewan/Manitoba plays, which comprise the vast majority of its production. Enerplus Corp (TSX: ERF, NYSE: ERF), which mainly produces natural gas, does not appear to offer breakeven analysis, though it did include a sensitivity analysis for 2014 funds flow per share in a recent presentation, which provides at least some inkling of what to expect. For natural gas, each change of USD0.50 per Mcf results in a change of CAD0.04 in funds flow per share. And for oil, each change of USD5 per barrel of WTI results in a change of CAD0.03 in funds flow per share. For the third quarter, Enerplus reported CAD1.04 in funds flow per share, up 6.2% year over year. This article originally appeared in the Maple Leaf Memo column. Never miss an issue. Sign up to receive Maple Leaf Memo by email. Winter is coming – and so is 2015 It's not too early to start thinking about next year. Research proves that companies launch new initiatives based on the calendar year. Just like you do. If you make your move now while it's early, you can get in on the ground floor of a triple-digit upside poised to take off in January. We're predicting that it will be our #1 stock of 2015. We've been right the last 3 years in a row – getting in early has less risk and is more profitable. Find out more here. 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