PORTFOLIO SALE ENBRIDGE ENB-NYSE/TSX
As of today the Big Boards have sliced through their support levels. It’s pretty clear that the Market is going to be challenged for awhile—however I don’t see any Big Crash.
Interest rates are low, fiscal policy around the globe is very accommodating—as the Market gets used to this New Normal (where we can’t have a normal business cycle anymore, no no no, we just have to grow grow grow all the time—Christmas every day—Ho Ho Ho 😉) bubbles develop and burst…and that’s just what we’re seeing here…with ZIRP, there is a constant risk of mis-allocation of capital.
One of the areas we saw that was oil production and pipeline development. Because of ZIRP, producers TO THIS DAY are willing to lose money with every barrel they produce because their debt is free. And even at $32 oil, Pioneer (PXD-NYSE) can raise $1 billion in an hour and then raise to $1.4 billion and still be oversold. God Bless the Fed.
So my black crystal ball says no deep market rout—but of course a relatively regular and standard 20% drop from the S&P high of 2134 is 1707, and we’re only at 1940 today.
Today is likely the bottom of this down move (put:call ratio over 1.2:1) but overall, the ongoing devaluation of the Chinese yuan will LIKELY reverberate for a few more weeks.
Here’s how a flat to down 20% market shapes my strategy for 2016. (It’s surprisingly similar to 2015…)
First off, I’ve sold my 1000 shares of Enbridge (ENB-NYSE/TSX) at CDN$44.55 for a $2300 gain. And I sold 2000 Parex (PXT-TSX) at $9.27 for a small loss. So I only own 2000 PXT and 1000 Cardinal (CJ-TSX) in the upstream producers.
Small positions in energy don’t really serve me; the upside isn’t big enough yet to NOT be in cash. There’s a good chance oil gets a 2 handle on it sometime in the next week or two.
Strategy wise, I see 2016 as a year for sifting through the high yield stocks and seeing which good looking babies have been thrown out with the bathwater.
GMLP is the perfect example of this. On a bad down day, the stock gave me a 28% yield. Crius is another example—on a financing I was able to get a 10% yield. (DID YOU SEE THEY RAISED THEIR DIVIDEND LAST
NIGHT? It’s the only green on my screen today (besides NTI). Cha cha cha!)
GMLP has contracted cash flows, good dividend coverage, and low leverage (3.36:1). They don’t need to keep saying they’re going to raise the dividend. They shouldn’t. Just get debt down and your stock will be rewarded with a higher valuation.
I’m compiling a list of stocks now yielding over 7% whose balance sheets aren’t really that bad. And then I wait to pounce when the yields hit double digits.
And if I can find them in the US, so much the better—or at least have exposure to US cash flow, like Crius (Canadian listing but all their business is in the USA) and to a degree Canadian Energy Services and Cortex.
I have a new (tongue-in-cheek) theory on when the energy market bottoms…when Valero (VLO-NYSE) hits $60.
This stock is The Last Bastion for investors who want exposure to
energy. Crack spreads are coming down fast and the stock charts of most other refiners have cracked as well. But not VLO. One reason is that it’s a
very easy sell to retail investors–it’s the easy long bet. They see weak oil and think who is that good for? They see high gasoline demand and say who is that good for?
But the March WTI-Brent spread is about 1 cent last time I looked for March. Fundamentally, I think the stock should be lower. I think estimates have to come lower.
But positive sentiment is clearly with this stock. Maybe if oil has a couple big countertrend rallies (highly likely), VLO cracks. It’s not a short really until it cracks $69.
When investors give up on VLO and see it drift down to $60, I would think that’s a good sign of capitulation.
In a bear market, small cap NYSE and NASD-listed tech stocks should not do very well…but I am so impressed with how well SSNI and POWR have held in this week…today is the first day they’ve cracked along with the Market. I see Grid Modernization as a relatively recession proof industry this year in the USA, but certainly valuations could come down, and SSNI is an expensive stock on traditional financial metrics. As the stock nears its 200 dma, I will revisit whether or not to buy more.
I’m quite excited to be attending the Grid Modernization Forum Jan 18-21 I’ve spoken to a couple presenters already, and I’m certain this will give me a lot more background and help me figure out which stocks have the best leverage to this Big trend.
I just wish it was in Miami. Or Honolulu. I guess the good news is it’s not in Minneapolis, where my Seahawks have to play Sunday in what is being billed as the coldest ever NFL game in history.