Rebuilding a portfolio or building one for the first time is a daunting task, one I have found is mostly an exercise in patience. You need to take it slow and not do everything all at once. As an oil guy, I hype energy as a cornerstone of everyone's equity exposure -- and one opportunity became available this week in the secondary offering of Transmontaigne Partners (TLP) .
In numerous columns and videos, I've talked about how to build an energy portfolio and what sectors need to be covered. You must have exposure to integrated oil, oil services, transport and storage, refining and natural gas. But you can't get this correctly done all at once. You need patience and need to wait for the opportunities to emerge and be ready for them.
Transmontaigne's interesting secondary offered Monday provides an excellent opportunity to add one subsector of energy at a good and opportunistic price. TLP is a master limited partnership involved in the transportation, pipelining and storage of oil and oil products.
I have always felt that these MLPs need to be a part of every investor's energy portfolio because they provide a cornerstone for returns -- they are not as dependent upon underlying commodity prices as so many other stocks in the energy sector are. In energy, the MLPs are the "toll collectors" in the transport and storage of oil products and are required to distribute most of their profits immediately back to their shareholders. Their share price is therefore usually pretty stable, while their distributions remain juicy -- they are the blue-chip "utilities" of the energy space for our portfolio.
And while I have been an advocate for two larger MLPs in the last year,
Enbridge Energy Partners
, the recent secondary offering has helped reprice Transmontaigne into an interesting opportunity, and right now probably a better value than my two other stalwarts.
The P/E on Transmontaigne is well beneath the sector average at just above 14, and its distributions for 2009 are a compelling 9%. As with all MLPs in this space, they are poised to take advantage of the huge contango condition in crude that I spoke of in other columns and has become such an easy road to steady profits.
But not all is simple at Transmontaigne -- remember, it is an arm of the Morgan Stanley Capital Group, spun off from by Morgan from various assets they accumulated during the early part of the last decade. Many investors shy away from owning oil assets owned by investment banks. Stephen Munger, the chairman at Transmontaigne, is an ex-partner of MS Capital, not an oil man.
But Transmontaigne hired Charles Dunlap, a career oilman and n ex-CEO of a Houston refining concern, as CEO in August 2009. The proceeds from this secondary are being wisely used to retire debts and fuel further acquisitions.
There's no better business right now in oil than the transport and storage business. And Transmontaigne is poised well. This secondary has done little to dilute the shares while still dropping nearly 5% off the share price. In a market filled with recapitalizations, this one looks solid.
And these are the types of opportunities we look for when beginning or rebalancing a portfolio in energy. It won't make you rich, but should make a quality addition to your holdings.
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 20 years' experience. He is a licensed commodities trade adviser. Dan's recognized energy market expertise includes active trading in crude oil, natural gas, unleaded gasoline and heating oil futures contracts; fundamental analysis including supply and demand statistics (DOE, EIA), CFTC trade reportage, volume and open interest; technical analysis including trend analysis, stochastics, Bollinger Bands, Elliot Wave theory, bar and tick charting and Japanese candlesticks; and trading expertise in outright, intermarket and intramarket spreads and cracks.
Dan also designed and supervised the introduction of the new Nymex PJM electricity futures contract, launched in April 2003, which cleared more than 600,000 contracts last year alone. Its launch has been the basis of Nymex's resurgence in the clearing of power market contracts over the last three years.
Dan Dicker has appeared as an energy analyst since 2002 with all the major financial news networks. He has lent his expertise in hundreds of live radio and television broadcasts as an analyst of the oil markets on CNBC, Bloomberg US and UK and CNNfn. Dan is the author of many energy articles published in Nymex and other trade journals.
Dan obtained a bachelor of arts degree from the State University of New York at Stony Brook in 1982.