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The sometimes arbitrary constraints of the institutional buy side serve a fiduciary purpose I suppose, but it also makes it easier for us individual investors to spot many a spectacular value-investment way before they do.
I never own more than 5 stocks and usually fewer than 5, (other than 401k's etc.) If you own 12 or so, you're likely to track the market instead of outperform it, and then you add the fees and voila, you're better off buying an index fund as Buffet suggests you do.
Investing a lot in an individual stock like NGL takes research, patience and recently, guts. But it rewards, often very handsomely.
I remember fondly checking a stock on the elevator ride up to my office about 6 years ago, only to learn it doubled on an acquisition bid. It paid for a year and a half of private college for my son by 9:31 AM EST that morning.
NGL will double from here. When, I don't know, but it will.
Jugs, I do agree that in the unique case of NGL there are a variety of very legitimate justifications for a buy back, despite needing to finance the shares with debt. The main one being the market has randomly priced their shares far below intrinsic value.
Since they will add debt to fund these repurchased shares, and not free cash flow, my preference would be that they keep these shares in the treasury. They don't have to pay dividends on them, but it gives them greater financial flexibility down the road since treasury shares can always be sold to raise cash if needed. Let's assume the shares are 40% undervalued, then the sale of the shares provides free funding without marginal debt less the 60% borrowed on the front end.
Anything NGL can do to continue to clean up their steadily improving balance sheet I support 100%.
The main justification I see for a buy back, is that this is a wise investment, given the temporary fire sale price.
That will be 2 cents, please ;)
While I don't specifically oppose NGL doing a share repurchase, it is only because I believe the share price is at least 40% undervalued at the moment.
Generally I look very skeptically (and avoid investing) in companies that use financial engineering, rather than simple earning power growth to attempt to increase the share price.
NGL is using the $91 million in proceeds from the Bakken sale to reduce debt. NGL’s obvious comittment to improve the balance sheet is something the market will eventually reward handsomely and may even reward today.
This is the question I ask myself to validate retaining a position in a badly performing stock that I own that has fallen below any floor I had imagined. It's the same one I ask when a stock is climbing faster than I expected.
Based on what I know today, if I didn't own the stock would I buy it at these prices? Yes or no.
In the case of NGL I picked up an extra 1,000 today at $9.19. It was the most productive response I could think of.
I agree on the need to start hitting guidance, especially pure GAAP earnings per share. They’ve blown away the revenue expectations but in the long run EPS is the key measure of both the underlying earning power of NGL, but also managerial credibility. They have a kitchen sink worth of adjustments to GAAP earnings this quarter to get to adjusted EBITDA which becomes a major problem in a very shaky market and sector, especially when the GAAP earnings are technically a miss. I relayed these thoughts politely to Trey.
Managing expectations is an art and a science. The art is to get them acceptable to the street but modest, and the science is to beat them every quarter.
Still buying shares.
An ever strengthening balance sheet is a precursor to earnings stability and dividend security not to mention the obvious signal it sends about their commitment to a clearer, more focused strategy.
The market will eventually figure this out. Don't know when, because they haven't yet, but they will.
Release confidently confirms adjusted EBITDA guidance of $450 million. Exactly what the doctor ordered.
Interesting historical perspective
Since 1946, there have been 18 midterm elections. Stocks were higher 12 months after every single one. Every single one. That’s 18 for 18. The second year of a presidency is usually the worst for stocks and the third year the best, by far.
Just throwing a little sunshine out there. Our day in the sun is coming soon - Thursday the 8th to be specific.
I agree we will be pleasantly surprised, mainly because it is so extremely unlikely we will have a downside surprise. The rating agency upgrade to stable strongly suggests cash flow guidance will be affirmed, or better. So the CC is very likely to remove most of the apparent uncertainty out of the distribution’s sustainability. Throw in a much cleaner balance sheet and we should escape any further downside risk.
Holding through earnings can often be very dicey when a stock is inexplicably weak, but the rating agency has clearly foreshadowed no surprise, so I await it with well deserved optimism.
A pleasant experience amidst the NGL carnage (which is almost over)
I don’t normally provide a daily update on my various stock maneuvers to my wife because her risk tolerance is substantially lower than mine. She likes the results but hates the process - which she prefers to have summarized when it is all over. So I was a bit surprised when she expressed dismay recently at the poor performance of a fund she had from an old job that has sat idle. Then out of the blue last night she asked, ‘You always have a favorite stock, what should I buy?’
So this morning she put an order in for 5,000 units of NGL at $9.50 sparing herself the inordinate, gut wrenching visceral pain the rest of us have endured with the recent inexplicable free fall. I’m chuckling a bit because she is going to get $2 grand on the 8th and for a very brief moment, think I’m a genius. With even modest credible guidance she’ll also get a nice jolt in capital appreciation. I only share this story to offer further proof of my conviction on NGL. I generally hate personally recommending individual stocks because I feel way too much guilt if they don’t work out as planned. My best picks have all seemed to require a gut wrenching phase for the big winners. Not this time. I already endured the pain on her behalf.
Excellent point about the NDA. I'm not sure people understand that spending a day with the rating agencies is more like a full blown financial colonoscopy. They end up knowing everything and they tend to err on the side of being conservative. If there was any trouble they would definitely reveal it.
Instead, they poured sunshine on NGL.
The weak close to a 52 week low on Friday of $9.75 was likely influenced by a squeeze on margined accounts. I’ll be very surprised if we don’t have a green day tomorrow. We’ve got the news value of a very positive and vitally important S&P report combined with a technically oversold position and the futures market is green (at least at the moment.)
If management affirms guidance on the 8th, which I expect, because they haven’t issued any kind of warning, we should move past the payable date on the 15th without a hiccup. Fair value may not be as far away as the extreme punishment we’ve endured lately suggests.
The credit rating agency’s increase from negative to stable will help NGL more than almost anything else could right now. I thought I would take a moment and explain why I believe that.
When I was VP of investor relations for a big bank back in the 80’s our CEO decided to raise the dividend 50% to “put a floor on the stock” over $30. The stock ran up that day (of course) but over time went from $32 to $12. No floor, just a yield that said to the street the dividend was unsustainable. The real reason our stock fell was because our debt was downgraded by all the rating agencies because we had massive, unhedged exposure to interest rates - which were rising faster than expected - in our $8 billion bond portfolio.
This is the opposite of that story. NGL’s distribution of $1.56 hasn’t supported a reasonable yield (i.e., higher stock price) at least in part, because of uncertainty about sustainability. This upgrade is very important in directly addressing that major uncertainty.
I have invested heavily in NGL because of this very concept. I thought they impressively mitigated their balance sheet risk with the sale of the propane division. Frankly, I was astonished the stock didn’t go on a major run after that news. I added enough shares on Friday to get my cost basis down to just under $10. I am more confident than ever, and wanted to share my investment thesis as part of the mix of this very good and useful board.
Making money in the market often requires being one major step ahead of consensus.
In all of my home run stocks, something gut churning like this seems to always be part of it. As a result I've become pretty comfortable buying in an epic collapse that occurs for no apparent reason.
As an aside, the distribution yield is now at nearly 4% a quarter. If this is safe, and I believe it is because of the significant improvement to the balance sheet and liquidity in general, this is as juicy as it gets from an income standpoint. Not to mention the much easier double from here.
Keep the faith.
At times like this I think of Warren Buffett. He thought one of the worst possible reasons to sell a stock was because it plunged in value. If your original reasons for buying it still apply, and the price has gone down significantly, it should be looked at as an opportunity to buy, not to sell. Which is what I did today at $10.60.
The volume is likely partially the result of exchange-traded funds. There's only 4 that own NGL so it's not that huge, but could be a factor. Overall I think the market is just retesting last week's low, before we head back up.
My take on the broader market is that - normally - when there's a flight to quality, Treasury yields decline. But that's not what's happening - and it's what's spooking a lot of people. Treasury yields are refusing to dip, as the 10-year Treasury rose to 3.225% today. That's the highest level since May 2011.
Until Treasury yields start to fall, the stock market is going to remain very nervous. But I also think NGL is going to hold up relatively - or even very - well through this. It’s a good flight to safety if you’re really worried about the impact rising interest rates will have on stocks.
10 year treasuries hit 3.26% yesterday which is the highest in 10 years. I think NGL is well positioned against the rising rate environment given the preposterously high yield we currently have, especially in the context of lower debt servicing cost.
The stock market hates rising interest rates for sure, but NGL should be more attractive than most given the yield.
I definitely can relate to preserving your cost basis. Last Thursday I pulled the trigger on 5,000 units at $10.6. My timing turned out to be very fortuitous, although I felt the run-up was long overdue. Now I have a comfortable cushion to weather new volatility - if there is any - but am far less inclined to want to buy because I am very content with my overall cost basis of $10.4 on 20K units.
Correct. The market simply has not caught up to the reality that NGL has a glorious amount of financial flexibility. This has created a huge upside potential with a very large margin of safety for investors who can look ahead beyond one quarter.
This will put some spring in NGL's step.
NGL Energy Partners LP (NYSE: NGL) ("NGL") today announced that it has called for redemption all $367,048,000 aggregate outstanding principal amount of its 6.875% Senior Notes due 2021.
I agree Jugs. We’ve finally gotten to the point where there is no pattern. The stochastic indicators are gasping desperately for oxygen which suggests this is a good entry point, which also means we’re going up. I think our next leg up will be about 25%. A little delayed, but it’s coming.
In the old days they called movement like this a random walk, but this pounding has been entirely manufactured. Good things are coming. Soon.
It's difficult to make sense of the never ending price decline. We couldn't hold onto the $11.65 which would have signaled a reversal. At this point we are getting awfully close to capitulation but the volume is low. If it goes any lower, I don't see it going much lower.
Seems like good time to buy, not sell.
I'm watching for $11.60+ as a reversal signal.
Jugs,
Agree with your analysis. One other thing that will help us is NGL is clearly far less cyclical now. Many dividend investors won't touch a cyclical stock because the dividend stability is always a big concern. This is going to help immensely as it will make investors comfortable with a lower dividend yield, which of course means a higher stock price.
$1.56 = 10% of $15.6 - seems pretty doable from here.
Resistance at $12.98 and then $13.62. Support is at 11.73 so we're making excellent progress on the way to $15+ where we should already be.
Here is the chart showing the homing pigeon. We basically want to get past the midpoint of that ugly red bar from the 27th.
[url] http://schrts.co/ZFhPsG
I’m in NGL for value, and only consider technical factors for entry and exit. But I have studied technical analysis quite a bit. Today was actually modestly bullish. It’s what’s called a homing pigeon. So Friday was a big candle and Monday was a small one completely engulfed by Friday’s. This means selling pressure has eased.
I believe you are right about $12.30-12.35 being key. That would signal a trend reversal if we close there tomorrow. Right now we have resistance on the 50 day moving average which is bearish, but it would be bullish to break through it. And it would confirm the trend reversal which may well have started today.
We are going up, and it may be as soon as tomorrow. Watch for $12.35.
Best wishes for a clean bill of health!
Good analysis. I put in a buy order on the 200 day MA which got filled while I was having a bagel. When I came back I was already in the money. The fundamentals are so good on NGL the technical reads have worked out very well for 'buy the dip' trigger prices.
Mostly I'm a long term hold but I love to pick up 'cheap' shares on test days like today.
From a technical perspective, barring something extraordinary, it looks like our channel has us at $15 within 30 days and then likely $18 near the fall before we start the next major leg up.
The fundamental's strongly support this as well. The balance sheet will be a major driver of value going forward. I'm in fairly big at over 20K shares. Very comfortable with that position given how shareholder friendly management has become.
Agree. There was no relationship at all to the obvious and significant increase in value from yesterday's news to the trading today. It created a very surprising buying opportunity given how much uncertainty has been removed.
NGL's investor relations leaves a lot to be desired. Last quarter was a good example of that.
The street's dysthymic attitude about NGL is baked into the current price, which says to me that anything remotely positive will be viewed as a huge surprise and the stock is likely to jump as rapidly as it fell.
I'm not too worried about the downside, given how punishing this past quarter has been. We'll see, but there is far more upside potential than downside in my opinion.
Predicting precisely what a stock will do on a given day, week or month - or in response to a near term event - is both impossible and moronic.
Agree. I think the conference call tempered enthusiasm rather than stimulated it. Price will likely reflect that for a while.
This is just message board; however, I would still be extremely careful about libelous statements. What you have said has no basis in fact and is maliciously overstated to the point of being intentionally false and misleading.