WASHINGTON, January 17, 2013 – After decidedly grumpy action earlier this week, Wall Street seems to be getting into its usually bullish options expiration week mode today. The feel of today’s market is how we imagine the sleeping giant might feel in “The Awakening,” the sculpture that’s depicted above in its former resting place near DC’s Hains Point.
As we approach the noon hour, the Dow Jones Industrial Average (DJIA) is up 70 points, give or take a few cents. Meanwhile, the broader S&P 500 is up over 17 points at 3134.92, flirting with its best level since 2007 when the first whiffs of the impending Great Depression II began to be detected by nervous but savvy investors.
Who knows how long this mood will last? It’s hard to make anything out of this kind of day. Everything starts and stops on a dime. Volume is low, everything is tentative, and those small investors who remain simply can’t shake the feeling that squadrons of fat cats are out there stalking us with massive computers, waiting to take that portion of our savings and investments they haven’t already stolen away with.
As a result, we continue to slowly remove parts of our portfolio, taking profits where we can find them, fearing that as the bitter Washington budget debates start taking more and more of the center stage, this early 2013 rally could evaporate in, well, a New York minute.
So far this month, IPOs have been unusually effective in generating quick profits—or longer term black ink, depending on your investment style. A surprising number of Master Limited Partnerships—MLPs—have been coming to market either via IPO or via secondary issues of stocks that are already trading and we’ve generally had good luck with these recently when we’ve managed to get our hands on a few shares.
This morning, we managed to snag a few shares of CVR Refining (CVRR), an IPO that’s been hived off of a much larger entity, all of which has attracted Carl Icahn’s attention over the last year or so. Last week, we picked up shares in the IPO of Tesoro Logistics (TLLC), another MLP split off from a larger company, in this case, the big refiner Tesoro (TSO). We already were involved in more of these investments in December, including secondaries of Atlas Pipeline (APL), Access Midstream (ACMP), Williams Companies (WMB), Legacy Reserves (LGCY), and the IPO of Alon USA Partners (ALDW).
We bailed out of ALDW last week as some holders seemed to be bailing out en masse after that stock’s original, massive pop, but now we’re looking to re-enter as it’s establishing an apparent new uptrend. We’d lightened up on LGCY for the same reason, but now it, too, seems to have bottomed only to resume the climb we thought we’d get earlier. The others have done well, with TLLC moving nicely and CVRR making a half decent attempt to stay above its offering price today.
Our only disappointment in this area thus far was Tuesday’s IPO of longtime closely held gas compression company USA Compression (USAC). After the original offer price had been reduced and the proposed share count increased, the stock drooped a bit after it began to trade. Two days later, it’s recovered a bit, but remains down 2% from the offer. Well, you can’t win them all.
The reason for picking these companies up is for their fat dividends. Secondary stocks offerings in this quadrant are currently offering great yields, while IPOs have yet to establish a track record. That said, the new offerings are likely to generate yields well in excess of 5%, while some of our existing holdings yield more than 10%. Add this yield to a modest but expected price increase in these stocks due to rising net asset values, and you have a set of relatively safe plays.
These stocks could wobble if the partisanship here in DC starts getting nasty again—a likelihood with this President—but their yields, which look stable throughout 2013, should keep them from getting entirely hammered like the rest of the market undoubtedly will.
As we mentioned in an earlier article on this topic, your total yield in these stocks can’t exceed $1,000 per stock account, so be careful how you load these things in to your portfolio, assuming you’re interested in doing so. Even your non-Roth IRA account could incur a tax consequence if your dividend take from these serious high-yielders exceeds the magic number. So if you get in, monitor your dividends carefully and either be willing to pay the piper at the end of the year, or sell a couple of these guys off by around Thanksgiving to avoid hitting that $1,000 jackpot. It’s a nice problem to have, actually, but why send any more to Washington than they’re already getting and mis-spending?
We’ll say a few words about REITs tomorrow, but we need to wrap this up right now so you can get back to work.
Remember: we mention investment ideas here and tell you what we’re doing. It’s up to you to decide whether playing along will be positive for your portfolio or not. We’re sharing information, not flogging stocks, and we don’t earn commissions, honoraria, or anything on stocks we mention here. We’re just hoping, like you do, that the stocks we buy will go up or at least pay a swell dividend while we own them. Or, on the rare occasion we screw up our courage and short given stocks, we hope those stocks will sink like a rock so we can buy them back lower and pocket the difference.
You have to be nimble in this market, and investing can, and often does, go in both directions.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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