LATEST U.S. GDP FIGURES DISAPPOINT EVEN MOST PESSIMISTIC ECONOMISTS – APOCALYPSE NOW?
Oh boy! Call me a Bad News Bear; but I see big trouble ahead for the American economy,
WHAT ARE YOU TALKING ABOUT, BARACK OBAMA & HIS POLITICAL & MEDIA APOLOGISTS ARE TELLING US WE’VE NEVER HAD IT SO GOOD?
What event sparked this treasonous thought?
Well, specifically, America’s GDP (Gross National Product) – the ultimate government-approved measure of economic growth in the United States of America -- grew just 0.2 percent in the quarter.
Yes, that’s not a typo: an anemic, bulimic-inducing 0.2 percent!
NOT 2%, but only 0.2 percent – that decimal is properly placed.
And here’s another sobering thought: That growth number was much worse than the 1 percent forecast of the most pessimistic economists!
THE STORY BEHIND THE STORY:
But it’s after digging into the actual statistics that accompanied this government report that some real foreboding & despair sets in:
(1) Corporate fixed investment plunged 2.5 percent, the worst number since late-2009.
(2) Not only that but nonresidential structure investment dropped 23.1 percent -- the worst drop in four years, influenced by a huge 49 percent meltdown in energy and mining expenditures [perhaps influenced by (a) continuing resistance to energy projects by climate-change stalwarts in the Obama White House; (b) overregulation of the energy industry by ultra-leftist EPA administrators and staff, in their valiant efforts to protect the “environment” from nasty & brutish energy polluters – even at the expense of thousands of new jobs & record economic growth; and (c) continuing tax heights for profitable American companies, along with uncertainty about future taxation in the last two years of America’s truly lame-duck president.]
Note that U.S. exports also dropped a 7.2 percent rate, because of the strong dollar. And consumer spending is plunging because of stagnant wage growth, economic uncertainty, and significant layoffs in many industries (partly as a response to the Democrat Party’s irresponsible and economically-challenged initiative, to raise the minimum wage federally and at the state level).
Meanwhile, it looks like the Fed will delay its much-discussed rate hike, originally expected this autumn.
In particular, it noted -- in its May 3rd post-meeting statement -- that economic growth had indeed slowed to a metaphorical crawl, and that inflation still remained below any worry level.
As if that weren’t enough, the Energy Information Administration (EIA) reported, on the same day, that crude oil inventories rose just 1.9 million barrels in the most recent week. That was less than HALF the 4.4-million barrel build that analysts were expecting.
In fact, inventories at the major supply facility, in Cushing Oklahoma, actually fell by more than 510,000 barrels. That was the first decline in 21 weeks, and it suggests that the recent U.S. oil surplus is starting decline – and perhaps lasting for a surprising long period of time.
Consequently, in recent days, we have now witnessed a continuing rise in oil future prices, as well as rising valuations for shares in many oil exploration, refining and service companies.
So perhaps its time to strike while oil-price-decline iron is still hot, and accumulate shares of the following energy companies (noted below) on periodic market dips?
So here we go, in my quest to retain my world title as “The Master At Avoiding Stock Market Disaster – While Still Able To Make Long-Term Capital Gains Too”!
AND HERE ARE MY OWN PERSONAL ENERGY-RELATED STOCK CHOICES:
1)BUY: KINDER MORGAN ($KMI), yielding 4.5 %
Yesterday, Kinder Morgan (NYSE: KMI) reported a discounted cash flow of $1.24 billion ($0.58) for the first quarter, its first full quarter post-consolidation. The number matched the company’s guidance “when factoring in stated commodity price sensitivities”.
Most important, management reconfirmed their target of a dividend of $2 per share for 2015 (having raised its quarterly dividend by 14% from a year earlier to $0.48), as well as its planned 10% dividend compound annual growth rate through 2020.
Some potential good news for KMI’s “TransMountain” pipeline project in Canada:
Kinder has signed community benefits agreements covering 87% of the route and has garnered support of about one-third of the 24 core First Nations native groups in Canada.
Should KMI meet its target of gaining public support by Canada’s National Energy Board, next January, current investor skepticism is likely to decline – meaning ten billion dollars of Canadian growth projects getting “de-risked” in the next six to 12 months, which in turn should drive price of Kinder Morgan shares higher.
2)BUY AMERICAN DEPOSITORY RECEIPTS OF STATOIL ASA (STO), yielding 5.6%
Statoil is the government-backed, but publicly-traded energy giant of Norway.
It produces oil and gas through a network of facilities in 36 countries, with key operations in the North Sea, Barents Sea, and Gulf of Mexico, as well as shale producing regions in the U.S.
The firm has been cutting back on drilling volume due to the oil price downturn; and the company lost 4.7 billion Norwegian kroner in its most recent quarter, compared with a profit of 14.3 billion in the same period last year.
Nonetheless, after “excluding extraordinary items”, Statoil still reported a profit of 9.1 billion kroner.
And STO still produced an impressive 1.93 million barrels of oil equivalent per day in the quarter, topping forecasts.
And in order to counter the recent trend of lower energy prices, management also pledged to trim its spending, as well introduce measures to bolster production efficiency.
Not only that, but the price of Statoil shares have been beaten down, to near record lows, during the recent meltdown in the price of shares in energy-related companies.
So here again is an opportunity to (a) buy a beaten-down stock at a “bargain-basement” price; (b) collect a generous dividend while you wait for energy prices to rise; and (c) ultimately score some significant capital gains – so long as you are willing to take a long-term point of view, and hold the stock until 2019 if necessary.
3)Buy BROOKFIELD RENEWABLE ENERGY PARTNERS LP ($BEP;$BEP.U), yielding 5.38%
This company is an American Master Limited Partnership (MLP); and already, this year, the company has raised its guidance for annual distribution growth to between 5 and 9 percent from its prior forecast of 3 percent to 5 percent. Much of this growth will be sparked by recent acquisitions and expansion projects that raised the partnership’s generation capacity by almost 15 percent last year.
Early in 2014, the company acquired Safe Harbor, a 417-MW hydropower plant in Pennsylvania. Management targets a 16 percent return on this investment from what it calls “project efficiencies”, as well as its operation in an increasingly capacity-constrained market.
And additional revenue generator is the 45-MW Kokish hydropower plant in British Columbia (Canada), which came onstream last year and operates under a 40-year contract with government-backed BC Hydro.
All told, Brookfield Renewable Energy Partners has 500 MW to 750 MW of projects that it can finance without issuing units in a secondary offering.
Other merits are a BBB credit rating; a debt-to-capital ratio of 40 percent; and the partnership has financed its five-year spending plan of CA$3 billion conservatively.
The firm also aims to keep its distribution payout ratio between 60 and 70 percent of funds from operations, as well as retain approximately CA$100 million in free cash flow annually.
Most important: (a) Brookfield Renewable Energy Partners has locked in more than 80 percent of its cash flow under long-term contracts, many of which include inflation-based escalators; and (b) Brookfield Renewable Partners primarily focuses on hydropower, the only renewable-energy source that can compete with natural gas on price.
(c) And ultimately this power generation LP expects to realize CA$120 million to CA$170 million in incremental cash flow by 2019, even if the markets which it serves boast weak demand.
There is really only one caveat to this MLP:
Brookfield Renewable Energy Partners’ quarterly results can fluctuate because of variations in wind and water levels, as well as in the Canadian dollar -- the currency in which it is paid.
In November 2014, Brookfield Renewable Energy Partners purchased 488 megawatts (MW) of alternative generation capacity in Brazil --163 MW of hydropower;150 MW of wind power; and a 175-MW biomass facility.
Current potential (future) profit makers include : (a) the 100-MW Knocacummer wind farm in Ireland that will start up in early 2015; and (b) the 45-MW Kokish hydropower plant in British Columbia, which came onstream last year, has a 40-year contract with government-backed BC Hydro.
And (c) Brookfield Renewable Energy Partners has locked in more than 80 percent of its cash flow under long-term contracts, many of which include inflation-based escalators.
The stock gained 24 percent in 2014, almost 12 percentage points below its return in Canadian dollars—the MLP’s home currency. And the U.S. dollar’s strength, relative to the Canadian dollar, could be a negative factor again in 2015.
But the unfavorable exchange rate also gives US-based investors a perhaps “once-in-a-lifetime” opportunity to buy and hold an otherwise low-risk, high-yield stock -- and at what I consider an excellent valuation.
And now onto another one of my favorite energy companies:
(3) PANTERRA RESOURCE CORP ($PRC), currently not paying a dividend.
And here's a bit of background info on PRC...
It’s a Canadian based oil & gas explorer & driller...
And it owns a number of impressive conventional and unconventional oil & gas properties in Western Canada.
In particular, it owns two oil producing properties (as well as two gas producing properties) in the Canadian province of Alberta...
Not to mention a nat-gas rich shale-gas project in the adjacent province of Saskatchewan.
And some other reasons for this choice?
(1) The company has developed proprietary methods for deep drilling, without the need for “fracking”.
And that's a good thing, since fracking often generates unexpected diminishing production of oil or nat-gas resources over time....
(2) PRC land holdings are particularly rich in exploitable oil deposits...
And that is indeed a bonus, should oil prices rise to their previous highs (as I think they will) by 2019.
(3) Additionally, the company is cash rich & holds NO DEBT...
All of which could generate, for stock holders: (a) Possible future capital gains; (b) possible future share buybacks; and even (3) the possibility of a future small dividend declaration.
(4) BAYTEX ENERGY CORP:
And next on our energy-stock recommendation list is an “oldie but goodie” favorite of mine.
Take a bow BAYTEX ENERGY CORP ($BTE, $BTE.CA), yielding 5%.
The key rationales for purchasing BTE?
This is a Canadian-based oil & gas explorer-producer with energy-rich land holdings in Western Canada... Not mention in the energy-rich Bakken Williston Basin in North Dakota too...
As well as extensive acreage in the promising Eagle Ford light oil play in Texas
And the company’s savvy management has recently engineered a friendly $1.8 billion acquisition of Australian-based Aurora Oil & Gas...
In my opinion, this is an excellent energy investing choice for both growth (capital gains) AND a sustainable annual dividend (5%).
And that's it for my investment musings for today.
Nuff said, I would think.