Dear Mr. Berko: I bought 100 shares of Tesla Motors in July 2015 at $280 and sold them in October at $248, losing $3,200. I sold them because you said Tesla would fall below $150 a share, and it did. Thanks to you (my stockbroker didn't want me to sell), I avoided a much larger loss. Most investors thought it would go to $1,000.
I've lost $87,000 in my account since last summer. It's down to $783,000. I think oil and gas master limited partnerships are good investments, and I seek your recommendations. I have $25,000 to invest in MLPs. At 72, I need more dividend income and must change my investment direction from growth stocks to dividend stocks. — HL, Detroit
Dear HL: Most stupids who lost money on Tesla Motors (TSLA-$245) don't know the difference between a speculation and an investment. TSLA, with a suspicious four-star rating, is not an investment. TSLA burns through millions of dollars of cash every day, squeezes hundreds of millions in tax credits from Congress, has never made a profit, has never paid a dividend and is not (and I repeat, is not) an investment. It is a bleeding speculation and could crash to $150 again. According to CNBC, Tesla loses over $4,000 on each car it sells and it needs another $700 million cash infusion quickly.
This is a fairy tale stock based upon the fantasies of a modern-day Pied Piper, called Elon Musk. TSLA is a textbook example of bandwagon blandishments, the power of cupidity, hope over substance and stupidity over logic. TSLA's rise to nearly $300 a share was the result of a record $3 trillion deluge of quantitative easing money, which got lost in the economy but stuffed the purses of the wealthy, who began frantically looking for appreciating assets to buy. In addition to owning TSLA and other stocks with high price-earnings ratios, the wealthy paid record amounts for artwork — for example, $300 million for a Gauguin, $272 million for a Cezanne and $186 million for a Rothko. If those crazy artists were alive today, they'd turn over in their graves at the prices paid for their "stuff."
Gas and oil operations are classified as upstream, downstream or midstream. "Upstream" and "downstream" operations refer to a company's location in the supply chain and are very commodity price-sensitive. Upstream oil and gas MLPs search for deposits, drill wells and recover raw materials. Examples are Exxon Mobil and Schlumberger. Downstream operations include refineries and marketing. Downstream companies turn crude into usable products, such as gasoline and petroleum-based products, that are sold to end users. Marathon Oil and Phillips 66 are well-known downstream companies.
Midstream operations are the link between upstream and downstream MLPs, with little exposure to commodity price fluctuations. Midstream operations are like tollbooths, collecting pass-through fees. The fees pay for product transportation, pipeline storage and gathering systems. Well-known midstream companies are Kinder Morgan and Williams. Because midstream operations may be the least risky, the following MLPs could regularly increase revenues, earnings and dividends. And if oil returns to higher levels, these issues may experience attractive appreciation.
—Spectra Energy Partners (SEP-46.10), a $2.5 billion-revenue company with a good balance sheet and a $40 book value, should earn $3.30 a share this year. SEP's business is 100 percent low-risk storage. The $2.56 dividend, yielding 5.6 percent, could rise to $2.95 this year.
—Enterprise Products Partners (EPD-$24.38) is a darn fine, well-managed $32 billion-revenue MLP. Though negative fundamentals pertaining to natural gas liquids modestly affect EPD's gas processing and marketing, the consensus is that EPD will continue growing its revenues and earnings. And the $1.56 dividend, which may be raised this year to $1.62, will yield 6.8 percent.
—Finally, Magellan Midstream Partners (MMP-$65.90) is a low-risk, $2.6 billion-revenue MLP with a stellar management team. It transports, stores and distributes hydrocarbons and related products. A strong balance sheet and superior earnings growth support a $3.14 dividend, which yields 4.6 percent and should grow by about 6 percent every year.
Invest $8,000 in each of those. Also, there's no excuse for your huge losses, so my last recommendation is to employ a better adviser. And hurry fast and quickly!
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
Photo credit: Colin Poellot