Friday, October 18, 2013

Friday Pick: Enbridge Energy Partners

Here is my trade for today. We'll use the chart price as the entry point.

I said I wanted to add more energy. Enbridge Energy Partners fits the bill.

(Updated chart)

Fundamentals: Enbridge is an oil and gas pipeline companies. It has a market cap of $9.55 billion, 314 million shares outstanding, and plenty of volume at an average 673.3K per day. It also sports a nice dividend yield of 7.15%. The fact that bond yields are falling makes hefty dividend-payers like Enbridge much more attractive. I believe this will help power EEP higher.

A bottom in oil prices may also help, even though as a pipeline company. Enbridge operates a "toll road" on North America's rising oil production. 

Zachs slapped a "strong sell' on this stock on October 13. Interestingly, Enbrdige has only gone higher since then. Zachs mentioned the negative earnings surprise, rising inventories, fines associated with with 2010 Michigan oil spill, and a dwindling cash balance. These are all true, and would give more cautious investors pause.

So if you prefer, other MLPs worth looking at include Energy Tranfer Partners (ETP, Magellan Midstream Partners (MMP) and Kinder Morgan (KMP)

I partly chose Enbridge because I believe the bad news is priced in. The company still has cash ($27.3 million). It is raising cash. Importantly, it is spending money wisely, building new pipelines to get crude out of Canada to ports and to US markets. the company carries a lot of debt, but that's what pipeline companies do. Earnings per share is expected to rise next year.

The company will webcast to discuss third-quarter results on October 30.

My target on a breakout is the July high of $32.90. But if we get another breakout there, then I'm setting my sights on $48. The trailing, close-only stop goes at $29.00.

Crude oil seems to be bouncing from the bottom of its range, but it has stronger support further down, and we may visit that. That means there could be extra volatility in energy stocks, and anyone who doesn't have the stomach for it should stay out.

I am not your investment adviser. Do your own due diligence before buying anything. And if you are inclined toward EEP, now you have all weekend to do your own due diligence.

I wanted to add at least one bank and maybe a social media pick, but that will have to wait until Monday. Have a great weekend.

No comments:

Post a Comment