Looking for long investments using the Form 4 data filed at the SEC usually involves looking for stocks that have insiders buying significant amounts of shares. But the demise of Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks) offers the opportunity to profit from Schadenfreude. Namely, you can take advantage of bottom-feeding in stocks that beleaguered Lehman may be crushing via forced sales.
Eagle Rock Energy Partners (EROC Quote - Cramer on EROC - Stock Picks) is one such candidate. This midstream energy master limited partnership (MLP) fell as much as 20% intraday on Sept. 11 on extremely high volume. Just over 3.1 million shares traded in the open market that day, compared to EROC's three-month average trading volume of 124,000 shares a day.
Well, the Form 4's are in, and it turned out that "Lehman Brothers Holdings Inc" was responsible for 2,470,992 of that day's supply of stock.
Midstream MLPs have shown recent weakness. Concerns about a further economic slowdown have hit this sector. Slower economic activity will likely translate into lower demand for energy. And since MLPs make money on the volume of product pumped through their pipelines, less volume logically should equal less cash flow to pay out to partners.
There is also understandable concern about the ability of these investment-intensive entities to raise funds, which they need to continue the large buildout of energy infrastructure that has been occurring in the States for years.
Both concerns are valid. In particular, a further economic downturn seems unavoidable. So even though I remain bullish on the prospects for midstream MLPs in the long term, the group's short-term selloff is not all wrong.
Jonathan Moreland
RSS
