NuStar Energy LP is a master limited partnership based in San Antonio, with 8,643 miles of pipeline and 81 terminal and storage facilities for crude oil, refined products, and other liquids.
On Friday, NuStar, reported its Q4 earnings and other financial data which, if you’ve been following our research since oil began its slide last summer, is, in our opinion, the best way to tell which companies are going to survive this period of low prices.
It looks as though NuStar is one of those companies.
I’ll share some of the highlights with you in a moment, but first let me say something…
As you follow the beginning of the year earnings reports, remember that companies can only tell you what’s happened, and knowing what’s going to happen is impossible. Because of this, it is my suggestion that your investments hinge on safety and long-term growth while the energy market is so volatile.
As a part of my constant ramblings in Energy and Capital blogs and editorials, long-term growth and short-term safety have almost always been found in high yield investments. The best of these, in the energy industry as it is today, are MLPs.
NuStar’s earnings report gives credibility to this thesis…
Just looking at the chart above, NuStar has outpaced other major oil and gas stocks on the open maret by about 20%. Not only that, but the company’s shares are up $10 and still rising since December 1st.
Friday’s announcement bolstered its position in the market as the company beat analyst estimates by $0.02 and increased the bottom line by nearly $0.25 compared to the same time last year.
Although NuStar’s overall revenue figures missed estimates – the company saw $681.7 million in quarterly revenue, below the $793 million estimate – the company still impressed us as oil prices fell more than they had in 5 years.
Plus, we really like that the company kept its dividend steady, paying out $4.38 per unit which comes to an annualized yield of 7.2%.
This is a great distribution for a company that trades over $60, and with earnings growth it can expect to see better quarters ahead as long as oil prices plateau where they are now.
Part of the reason for NuStar’s success is its structure. Not only does being listed as an MLP offer great tax incentives, so too does the business model of midstream oil assets. Because the company is just an intermediary between producer and consumer, it serves a function that is vital to the industry and, therefore, reliable in terms of income.
This story is the same for other MLPs too. In fact, other MLPs are probably better in terms of investment right now…
Even though I’ve just painted a very bullish case for NuStar, remember that the company just reported earnings, has already risen $10 since the beginning of December, and won’t see much in the way of news until the end of the first quarter.
This all means that investment wouldn’t be prudent at this time because the easiest gains for the company have already happened. Instead, I suggest scouring MLP listings for companies with proftable business models and a lot of upside over the next few years.
Some of these, like NuStar, are going to be pipeline and storage companies that will continue expansion in North America as the U.S. and Canada try to maintain production during the bear market.
Others will focus on natural gas, services, and other pieces of the energy market that offer stable income. These types of MLPs are the perfect hedge for portfolios exposed to the volatility of oil.
Good Investing,
Alex Martinelli
