JT’s DAILY (WEEKLY as of 12/9/2013) BLOG for Month Of December 2015

Note: All previous month's posts are available in the archives, as noted above. 

All postings for the month are available here, sorted in descending order - i.e. most recent at the top.

All times are Eastern Time - same as the NYSE

1st Posting for Week Beginning Monday 12/21/2015

Posted Saturday 12/19/2015 9:00 AM

Stocks gained Monday, Tuesday, and Wednesday, then gave it all back with change Thursday and Friday. The thumping on Friday was severe, with the Dow Industrials declining 367 points. Although the averages are holding up fairly well, market breadth reveals a different story, indicating a select group of heavily weighted names are masking the broader market carnage, with some sub-groups within the energy sector down below their 2009 lows. Precious metals miners are also devastated, as the price of gold, silver, and copper has plummeted right along with oil and natural gas. 

I will post announced ex-dividend dates and earnings reports for the next two weeks upcoming, as this will be my last posting until after year-end.

Ex-dividend dates announced on my stocks occurring in the next two weeks are as follows:

Phillip Morris (PM), 12/21/2015, yield 4.53%.

PennantPark Investment (PNNT), 12/22/2015, yield 17.00%.

BlackRock Capital (BKCC), 12/22/2015, yield 8.75%.

Altria Group (MO), 12/22/2015, yield 3.87%.

Medtronic (MDT), 12/22/2015, yield 1.85%.

MFA Financial (MFA), 12/23/2015, yield 11.66%.

Main Street Capital (MAIN), 12/28/2015, yield 7.38%. MAIN pays monthly.

American Capital Agency (AGNC), 12/29/2015, yield 13.79%.

Windstream Holdings (WIN), 12/29/2015, yield 9.82%.

Prospect Capital (PSEC), 12/29/2015, yield 9.82%. PSEC pays monthly.

Nucor (NUE), 12/29/2015, yield 3.88%.

National Health Investors (NHI), 12/29/2015, yield 5.59%.

Annaly Capital Management (NLY), 12/29/2015, yield 12.71%.

Enerplus (ERF) 12/29/2015, yield 8.60% approximately, depending upon US-Canadian exchange rates. ERF pays monthly.

Realty Income (O), 12/30/2015, yield 4.47%. O pays monthly.

Kimco Realty (KIM), 12/30/2015, yield 3.89%.

Cisco Systems (CSCO), 1/4/2016, yield 3.14%.

Raytheon (RTN), 1/4/2016, yield 2.09%.

Two earnings reports occurred as anticipated last week. General Mills (GIS), reporting on 12/17/2015, missed on both EPS and revenue, while Darden Restaurants (DRI), reporting on 12/18/2015, beat on EPS but missed on revenue. See the firm’s websites, the financial press, or Seeking Alpha for earnings details. Only two of my stocks are scheduled to report in the time remaining this year, ConAgra (CAG) on 12/22/2015, and Paychex (PAYX), also on 12/22/2015.

Upgrades / downgrades on my stocks last week were as follows:

Buckeye Partners LP (BPL) was upgraded from Neutral to Buy at DA Davidson.

Nucor (NUE) was upgraded to Buy at Nomura.

Kimberly Clark (KMB) was upgraded from Neutral to Buy at Goldman.

Chevron (CVX) was upgraded from Sector Perform to Sector OutPerform at Scotia Howard Weil.

American Electric Power (AEP) was upgraded to Buy at Evercore ISI Group.

Total S A (TOT) was initiated at Buy at Credit Agricole.

ConocoPhillips (COP) was initiated at OutPerform at Credit Agricole.

Exxon (XOM) was initiated at OutPerform at Credit Agricole.

Chevron (CVX) was initiated at OutPerform at Credit Agricole.

Royal Dutch Shell (RDS.B) was initiated at OutPerform at Credit Agricole.

Statoil (STO) was initiated at OutPerform at Credit Agricole.

Sysco (SYY) was initiated at Sell at Goldman.

Chevron (CVX) was upgraded from Hold to Buy at Argus.

Kimco Realty (KIM) was upgraded from Hold to Buy at Argus.

General Dynamics (GD) was downgraded from OverWeight to Neutral at JP Morgan.

ConAgra (CAG) was initiated at Buy at Jeffries.

Northrop Grumman (NOC) was upgraded from Neutral to OverWeight at JP Morgan.

American Capital Agecy (AGNC) was downgraded from Equal Weight to Under Weight at Morgan Stanley.

Mid America Apartment Communities (MAA) was downgraded from OverWeight to Sector Weight at KeyBanc Capital Markets.

JM Smucker (SJM) was initiated at Buy at Jeffries.

Waste Management (WM) was initiated at Neutral at JP Morgan.

Welltower (HCN) was downgraded from OverWeight to Neutral at JP Morgan.

Paychex (PAYX) was initiated at Neutral at Sterne Agee CRT.

Alliant Energy (LNT) was upgraded from Equal Weight to OverWeight at Barclays.

Energy Transfer Partners LP (ETP) and Energy Transfer Equity (ETE) were both initiated at Buy at Jeffries.

MicroSoft (MSFT) was upgraded to Neutral at Goldman.

Pfizer (PFE) was initiated at OverWeight at Atlantic Equities.

Spectra Energy (SE) was initiated at Market Perform at Wells Fargo.

Plains All American Pipeline LP (PAA) was downgraded from Accumulate to Neutral at Seaport Global Securities.

Enerplus (ERF) was initiated at OutPerform at Raymond James.

Note that I indicate the prior rating when it is available; otherwise, I just indicate the new rating.

Well, the bad news just keeps on coming for energy stocks. The over-used phrase “perfect storm” may actually be justified in this case. The Saudis show no signs of backing off on their current production levels, while many other producers, such as Russia, are pumping flat-out out of desperation, in an effort to maintain revenue. Iranian oil may soon be adding to the glut. So supply is not declining enough to relieve the over-supply situation. Meanwhile, on the demand side, a slowdown in China, chaos on Europe, and economic malaise just about everywhere means demand is not accelerating, even as the price declines. Even with cheap gas, Joe Sixpack can’t afford to load up the family and take that dream vacation trip to Disney World while struggling with debt and skyrocketing health insurance premiums. Supply and demand will eventually balance out, but not before a lot more pain for everyone involved in the oil & gas business, and in fact all energy businesses. The regime has effectively destroyed coal, and even solar and other alternative energy solutions are less attractive on a cost basis when fossil fuel costs are as low as they are today.    

Noted short seller Jim Chanos has been shorting energy stocks for some time, and a new article on MarketWatch Friday explaining his thesis regarding oil and gas producers is not encouraging, as far as a rebound in oil prices is concerned. We may be entering a new paradigm here. While I’m not selling my energy stocks, I’m not buying more either, even as prices continue to drop. My rule prohibiting more than 20% of my portfolio in a given sector, which I mostly complied with, has turned out to be prudent. Still, I feel everyone’s pain, as the 20% that I had is now barely 10% of a reduced total portfolio value. I long ago sold Breitburn Energy Partners LP (BBEP), Linn Energy LLC (LINE), and Legacy Reserves LP (LGCY) at or near their respective peaks. That’s the good news. But as prices collapsed, I went back in at what I thought were “steal” prices, at high to mid single digits in the cases of these three names. That’s the bad news. I frankly did not expect their market prices to drop to barely a dollar, or less in the case of BBEP. Also, bargain accumulations of several midstream MLPs have likewise turned out badly, as the bargains were illusionary. To quote W, “this sucker may go down” may apply to many oil and gas companies, especially if they have a lot of debt. The take-away here is when a sector goes into free-fall, wait until it hits bottom before getting back in. You won’t get in at the bottom, but a little above that level is better than getting in when there are further major declines ahead. Also, be aware of any personal bias towards a sector. Having spent a 32 year career entirely with two energy firms (ConocoPhillips (COP) and Coastal Corp, later acquired by El Paso Energy (EP)), I admittedly am biased towards the sector. And why not, it has been a very lucrative sector to work in and invest in since 1970, when I started out. There have been ups and downs, but overall energy has been a winner over the last 40 years. But this current slump may end up being worse than any I have experienced. Think back to the Great Depression, when the price of a barrel of crude oil was just 13 cents!   

This will be my last posting of 2015. I’m headed out to Colorado, as I understand the ski areas have received a lot of snow. I’ll find out soon. If I survive the trip, I’ll be posting weekly again beginning January 4th.

Merry Christmas to all & also a Happy New Year. As for my fellow investors in energy stocks and MLPs, don’t sweat it, it’s only money, and that can always be made back.   


1st Posting for Week Beginning Monday 12/14/2015

Posted Sunday 12/13/2015 8:30 AM

The stock sell off continued last week, with the broad market declining four days out of five, punctuated Friday with the largest Dow Industrials decline since October 22. The carnage continued in Energy, as West Texas Intermediate ended the week under $36, and the MLP business model for income seekers is now being called into question. In fact, high yield investments of all stripes are under stress, from junk bond funds to BDCs to MREITs. Happy talk predictions of a Santa Claus rally seem to have disappeared from the discourse.

Meanwhile, my dividend payers continue to pay in most cases, with another batch going ex-dividend this week, as follows:

TICC Capital (TICC), 12/14/2015, yield 17.44%.

Potlatch (PCH), 12/14/2015, yield 4.80%.

Main Street Capital (MAIN), 12/15/2015, yield 6.99%.

Solar Capital (SLRC), 12/15/2015, yield 9.32%.

Gladstone Investment (GAIN), 12/16/2015, yield 10.25%.

Total S A (TOT), 12/16/2015, yield 5.97%. Note that the yield is before 30% withholding by France.

Ventas (VTR), 12/17/2015, yield 5.44%.

Greif (GEF), 12/17/2015, yield 4.98%.

Apollo Investment (AINV), 12/17/2015, yield 14.13%.

General Electric (GE), 12/17/2015, yield 3.00%.

Phillip Morris (PM), 12/21/2015, yield 4.65%.

As for earnings reports from my stocks, Greif (GEF) reported last week, on 12/10/2015, not 12/08/2015 as listed on last week’s posting. See the firm’s website, the financial press, or Seeking Alpha for earnings details. As for this week, only two reports are expected, from General Mills (GIS) on 12/17/2015, and Darden Restaurants (DRI) on 12/18/2015.

Upgrades / downgrades from last week on my stocks were as follows:

Legacy Reserves LP (LGCY) was downgraded from Buy to Hold at Stifel Nicolaus.

American Electric Power (AEP) was upgraded to Buy at UBS.

Medley Capital (MCC) was upgraded to OutPerform by both Keefe Bruyette & Woods and Wells Fargo.

Norfolk Southern (NSC) was upgraded from UnderWeight to Equal Weight at Barclays.

Unilever (UL) was upgraded from UnderPerform to Neutral at Credit Suisse.

Kellogg (K) was upgraded from UnderWeight to Equal Weight at Morgan Stanley.

Blackstone Group (BX) was downgraded from Buy to Neutral at BofA/Merrill.

Kinder Morgan (KMI) was downgraded from OutPerform to Sector Perform at RBC Capital Markets.

GlaxoSmithKline (GSK) was upgraded from Neutral to Buy at BofA/Merrill.

Intel (INTC) was upgraded from Neutral to Buy at Nomura.

ONEOK Partners LP (OKS) was downgraded from Neutral to UnderPerform at BofA/Merrill.

Plains All American Pipeline LP (PAA) was upgraded from Neutral to OutPerform at Robert W Baird.

Sanofi (SNY) was downgraded to UnderPerform at Exane BNP Paribas.

Note that I indicate the prior rating when it is available; otherwise, I just indicate the new rating.   

Well, what a week it was for Kinder Morgan (KMI) shareholders. After a 30% decline the previous week, and the announcement on Tuesday that the dividend would be cut 75%, the stock stabilized near $17. The MLP space has been hit very hard by the precipitous decline in oil prices, and also by the low natural gas prices, such that the viability of the high-yield MLP business model is now being questioned. Just as a general rule, anytime a yield is into double digits, or even close, history has shown that it’s not a question of if it is sustainable, but more a question of when will things fall apart. The midstream pipeline “toll taker” MLPs may not be as devastated by the commodity collapse as the upstream production MLPs, but they are nevertheless affected. I intrinsically felt that MLPs had an extra element of risk, as opposed to a C-Corp, which is why none were on my Tier1 list of safest stocks. I had supposed that the primary risk would be if the government suddenly changed the rules, with a scenario occurring like the Canadian Trust debacle of 2006. Like many others, I have been totally blindsided by the oil price collapse, as it seems almost like the Saudis are pursuing a “scorched earth” policy in that their continued high production levels are hurting them and their fellow OPEC members as much as the US shale producers that they hope to displace. In my opinion, the shale industry will survive, even as assets are redistributed from weak hands to stronger hands, but other high-cost producers, such as the Canadian oil sands and deep water/arctic production may go out of business entirely if there is no respite.

As for other high yield categories, such as BDCs, MREITs, and rural telecoms, each of these categories has pitfalls. That is why these entities are in my Tier3 group, being recognized as high risk, and are not likely to keep up their high payouts if the economic landscape deteriorates significantly. The key to success here is to collect the high yield long enough to compensate for when the party ends, and strictly limit the holdings here to a small percentage of the total portfolio, no more than 15%.  

Another rule I have is to take some money off the table when the good times are rolling. Right after Kinder Morgan reorganized and consolidated the MLPs (KMP, KMR, & EPB) into Kinder Morgan Inc (KMI), as KMI soared, I sold 40% of my holdings in two steps; 20% at $$41.00, and another 20% at $42.65. Smart move. I also was not affected by the consolidation, as I held none of the Kinder Morgan MLPs. I did buy back in during the recent sell off, acquiring the same number of shares I previously had sold, in two transactions, half at $22.50, and half at $19.25. Not as smart a move. I suspected a dividend cut was a possibility, but I didn’t think it would occur so quickly, plus I figured it would not be more than 50%. A quick calculation, considering all current KMI holdings and prices paid, reveals that at time of purchase, I was exposed to KMI for about 3% of my total portfolio, based on the average portfolio value at the time of these purchases. So, even though KMI was one of my largest holdings, it was still well under my absolute limit of 5% of my portfolio invested in a single stock. Of course, even though the number of shares is the same, it is now somewhat less than 3%, closer to about 1.5%. Rules are good to have. They can prevent a disappointment from becoming a disaster. In my case, it could be a lot worse. I actually had several arguments with myself when my rules came into play with the opportunities I believed KMI presented. The rules mostly prevailed. I am better off today because I had some rules. I still believe that KMI will eventually recover to some extent, but it will be a long time before it returns to the $40 level, if it ever does. As for Mr. Rich Kinder, he is still admirable for what he has accomplished, and I wouldn’t count him out, but his reputation as a savvy player has definitely taken a hit with these recent developments.


1st Posting for Week Beginning Monday 12/07/2015

Posted Sunday 12/06/2015 2:00 PM

Stocks sold off three days last week, and gained the other two days, but the end result was the major averages ended the week slightly ahead of where they started, with a substantial rally on Friday contributing mightily to that result. Ignoring the overall market, the carnage continued all week long in the energy sector, with oil and gas Master Limited Partnerships leading the sector towards the downside. Upstream MLP Breitburn Energy Partners LP (BBEP) joined fellow traveler Linn Energy LLC (LINE) by eliminating its dividend. In the past 12 months BBEP has seen its unit price decline from the low twenties to barely one dollar, while LINE has fallen from the thirties to under two dollars. But the biggest casualty this past week was Kinder Morgan (KMI), which has fallen from the mid-forties as recently as last April to close Friday at $16.82. See my wrap-up paragraph below for more on KMI.

Stocks on my lists slated to go ex-dividend this week are as follows:

Triangle Capital (TCAP), 12/07/2015, yield 9.52%.

Public Service Enterprise Group (PEG), 12/07/2015, yield 4.04%.

Westar Energy (WR), 12/07/2015, yield 3.42%.

SCANA (SCG), 12/08/2015, yield 3.77%.

Medical Properties Trust (MPW), 12/08/2015, yield 7.52%.

Newmont Mining (NEM), 12/09/2015, yield 0.53%.

Reynolds American (RAI), 12/10/2015, yield 3.18%.

Dr Pepper Snapple (DPS), 12/10/2015, yield 2.14%.

Fifth Street Finance (FSC), 12/11/2015, yield 11.36%. FSC pays monthly.

Frontier Communications (FTR), 12/11/2015, yield 8.38%.

Ares Capital (ARCC), 12/11/2015, yield 9.69%.

Merck & Co (MRK), 12/11/2015, yield 3.50%.

Digital Realty (DLR), 12/11/2015, yield 4.75%.

TICC Capital (TICC), 12/14/2015, yield 17.03%.

It appears, per the E*trade “snapshot” display, that the long-awaited fourth quarter dividend from Statoil (STO) has already occurred, on 11/12/2015. I searched Seeking Alpha, the firm’s own website, and other sources and could find no announcement whatsoever regarding the dividend. That is one reason I sold my STO holding, the lack of information available on the timing of dividends. By the time the date for a STO dividend is known, it frequently is after the fact.

All three stocks listed in last week’s posting as scheduled to report earnings did so as expected. Specifically, these were Fifth Street Finance (FSC) on 11/30/2015, Medtronic (MDT) on 12/03/2015, and Medley Capital (MCC) on 12/04/2015. See last week’s posting for the names, and the firm’s websites, the financial press, or Seeking Alpha for earnings details. As for this week, only one report is expected, from Greif (GEF) on 12/08/2015.

Upgrades / downgrades from last week on my stocks were as follows:

Ensco PLC (ESV) was upgraded from Neutral to Buy at Guggenheim Securities.

Noble Corp PLC (NE) was upgraded from Neutral to Buy at Guggenheim Securities.

Transocean (RIG) was upgraded from Neutral to Buy at Guggenheim Securities.

General Dynamics (GD) was upgraded from Equal Weight to OverWeight at Barclays.  

Raytheon (RTN) was downgraded from OverWeight to Equal Weight at Barclays. 

MicroSoft (MSFT) was upgraded from Market Perform to Sector Perform at Raymond James.

Phillip Morris (PM) was upgraded from Reduce to Neutral at Nomura.

Johnson & Johnson (JNJ) was upgraded from Equal Weight to OverWeight at Barclays.

Merck (MRK) was upgraded from Equal Weight to OverWeight at Barclays.

Pfizer (PFE) was assumed at Equal Weight at Barclays.

Newmont Mining (NEM) was downgraded from Buy to Neutral at Citigroup.

Windstream Holdings (WIN) was upgraded from Market Perform to OutPerform at Raymond James.

Sanofi (SNY) was downgraded from OverWeight to Equal Weight at Morgan Stanley.

Chevron (CVX) was upgraded to Buy at Citigroup.

Eni SpA (E) was also upgraded to Buy at Citigroup.

Kinder Morgan (KMI) was downgraded from Buy to Hold at Argus.

Seadrill (SDRL) was downgraded to Hold at ABN Amro Bank.

Roche Holdings (RHHBY) was upgraded from Neutral to Buy at Citigroup.

Another week, probably another pounding in store for energy stocks. Kinder Morgan (KMI) has declined steadily since April 2015, along with the rest of the energy sector. In recent weeks, oil and gas MLP’s have been especially hard hit, and even though KMI is a C-Corp, it trades like an MLP. In mid-November, KMI seemed to have reached a bottom in the mid-twenties, but starting on 12/1/2015, KMI went into a waterfall decline. In candlestick parlance, KMI’s chart for December shows “four black crows”, with each down day bringing a longer decline than the day before. The immediate catalyst was a poorly received M&A announcement on Monday, as the deal was viewed as questionable and ill-timed, considering KMI’s highly leveraged balance sheet. The decline picked up steam as oil prices dropped further following the OPEC meeting, a credit outlook downgrade from stable to negative was issued by Moody’s, and then the coup-de-gras was delivered on Friday by the company’s own management. The firm’s attempt to reassure investors had an effect, all right, only opposite of the one desired, as investors read into the announcement that the dividend could become a casualty of the need to maintain an investment grade credit rating.

There are many, many articles on Seeking Alpha and elsewhere on KMI, both pro and con, so I recommend that anyone thinking of buying now should read several of them. While I have praised founder Rich Kinder in numerous postings before, and rightly so, considering his success in building the huge colossus that KMI has become, there is no doubt that he has followed a somewhat aggressive strategy over the years, and has come out on top over and over again. I truly expect that will be the case once again. But, as disappointing to Harry Truman as it would be, I have to make an “on the other hand” comment. The firm is by all accounts highly leveraged, the Saudi “war on oil production competitors” shows no signs of easing, and the current and promised dividends may have to be curtailed in favor of repairing the balance sheet. Further, no human being is infallible, and I suspect that the past week’s melt-down took management by surprise. There definitely could be more downside ahead, and vindication could be many months away, possibly extending from months into years.

As for me personally, I did increase my KMI holdings by 25% last week, buying at $22.50 and then again at $19.25. With KMI closing Friday at $16.82, I obviously got stabbed by the “falling knife”. I am now maxed out on KMI, so I will have to pass even if it goes down further. If I didn’t own any, or not much anyway, I would buy in at the $16 and change level, and buy more if it declined further. My rules against having too much of my portfolio in a single holding won’t let me buy more, but absent that constraint, I would buy at these levels. But also note, I am prepared to hold KMI for years, if necessary, to see my faith rewarded. Plus, I am not as risk-averse as the typical retired dividend investor.

One last comment – if you want some insights on Mr. Kinder, read the book “The Smartest Guys in the Room – the Fall of Enron”. It is a fascinating read, and while it only mentions Rich Kinder peripherally, it presents him as a no-nonsense, highly regarded executive who, when he saw that Lay and friends were taking the firm down a path that he disagreed with, did the honorable thing and resigned. One anecdotal note that particularly stood out for me was that a retired Enron Vice President reportedly sold all his Enron stock immediately upon learning that Rich Kinder had left the company, which turned out very well for the gentleman.  


1st Posting for Week Beginning Monday 11/30/2015

Posted Sunday 11/29/2015 7:00 PM

As expected, last week was a quiet week for the stock market, which was to be expected for a major holiday week. Not even with an avalanche of economic data coming out on Wednesday. The readings on personal income and spending, durable orders, housing, sentiment, claims for unemployment, and oil inventories were all more or less within the expected ranges, and thus had minimal effect. The immediate market focus will now shift to retailers and expectations for the holiday shopping season. The initial indications are that this year is unlikely to be a record setting year. 

Only a minimal number of my stocks are set to go ex-dividend this week, as follows:

Waste Management (WM), 12/02/2015, yield 2.85%.

Wal-Mart Stores (WMT), 12/02/2015, yield 3.25%.

Kimberly Clark (KMB), 12/02/2015, yield 2.92%.

Pepsico (PEP), 12/02/2015, yield 2.80%.

Ensco (ESV), 12/03/2015, yield 3.46%.

As for earnings, none of my stocks reported last week, and only three are set to report in the coming week; Fifth Street Finance (FSC) on 11/30/2015, Medtronic (MDT) on 12/3/2015, and Medley Capital (MCC) on 12/4/2015.

Upgrades / downgrades coming out on my stocks last week were minimal:

Kellogg (K) was upgraded from Neutral to OutPerform at Credit Suisse.

Pepsico (PEP) was upgraded from Reduce to Neutral at Nomura.

Blackstone Group LP (BX) was initiated at Neutral at JP Morgan.

Calumet Specialty Products Partners LP (CLMT) was initiated at Neutral at Goldman.

Cisco Systems (CSCO) was initiated at Buy at Sun Trust Robinson Humphrey.

Merck (MRK) was initiated at Hold at Berenberg.

Nucor (NUE) was initiated at Buy at BB&T Capital Markets.

Pfizer (PFE) was upgraded from Reduce to Neutral at Sun Trust Robinson Humphrey.

Nothing much has changed over the past few weeks. Just as some quality cyclicals were coming into range, the market rallied and they quickly advanced. I’m referring to Emerson Electric (EMR), Eaton (ETN), and Greif (GEF). While their current prices are still somewhat attractive, I can’t see buying a cyclical just now, considering the economic outlook, unless I can get a terrific bargain. BDCs are mostly at bargain levels, but again, an economic downturn could impact these names severely. As for energy, my investment status is like most Americans after Thanksgiving – I’m stuffed to the gills with these stocks, and I probably have picked up a few turkeys here and there. I would be a buyer if I didn’t own any, but at this point, my rule against over-weighting a given sector prevents me from buying more, no matter how tempting. Plus, it is now apparent that the depression in the oil patch is going to last awhile. T Boone Pickens’ prediction of oil in the $70’s by year-end is working out about like his beloved Oklahoma State University Cowboys’ bid for a Big 12 Championship. As an oil investor and an Oklahoma State alum, I wish he had been right on both counts, but the latter was not to be, and prospects for the former ($70 oil) are dim.