2 Final Additions to the Most Profitable Ultra Income Year EVER in Transformity Research History πππ
Hey Transformity Investor Ultra Income member,
I gotta say--I have been running real money growth and income portfolios for 20 years and publishing and editing newsletter for 30 years.
To say I am blown away our 2020 performance does not get close. As I always like to say, in a 7% annual return stock market (including dividends), to earn 86.1% return in 2020 remarkable--7/86 still adds up to 12.3 YEARS of WEALTH created in 9 months--plus another the average 21.2% yield on our capital invested or 108% TOTAL RETURN as equally stunning.
As I have not-so-subtly shared during this amazing ride, THIS is the kind of year that sharing some of that new wealth with others less fortunate puts a very big cherry on top of this amazing cake (and I have not even GOTTEN to the 280% ish gains in our Ultra Growth portfolio--OMG.) For instance, we support Feeding America which serves over 50 million Americans who are hunger at risk...they have 250 branches all over America--they have some big donors who match our donations.
Just saying--making all this money feels even better when we share some of it :).
That said, here are the numbers as of Dec 16:
| Total Portfolio Cash Invested | $170,000.00 |
|---|---|
| Total Portfolio Gain/Loss 2020 ($$) | $146,389 +$34,090 dividends |
| Total Percentage Gain to Date | 108.11% |
| S&P 500 Return, Year to Date | 14.23% |
| Total Outperformance of SP 500 (X) | 7 X |
We have upped the Ultra Income Buy Under Prices--
but target prices are STILL around 30-50% Upside from Here!
Transformity Investor PRO Ultra Income Portfolio Results 2020
NOTE: 1) TI Pro entered 2020 Long AMZA PFFA NRZ Sold them Feb 23rd when we went to cash
2) For portfolio return calculation, every equity position is @$10,000 and Options position is @$5000
| Company/Security | Ticker | Option Expiry | Date Bought | Price Paid | #Shares Options | Annual Dividend | Annual Dividend $ | Sold Price | Date Sold | Current Price | Total Return $$ | BUY UNDER PRICES $$$ | Total Return % |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Virtus InfraCap Preferred Stock ETF | PFFA | 3/26/2020 | $ 14.20 | 704 | 11.00% | $1.98 | $ 22.09 | $ 6,948 | $22.25 | 69.51% | |||
| InfraCap REIT Preferred ETF | PFFR | 3/26/2020 | $ 15.20 | 657 | $1.42 | 7/26/2020 | $ 23.45 | $ 6,353 | 63.62% | ||||
| 2xLeveraged Preferred Stock ETN | PFFL | 3/26/2020 | $ 12.02 | 831 | 12.33% | $2.20 | $ 19.07 | $ 7,686 | $19.25 | 76.96% | |||
| USA Compression | USAC | 4/1/2020 | $ 4.80 | 2200 | 19.32% | $2.10 | $ 12.68 | $ 21,956 | $12.80 | 207.92% | |||
| Annaly Mortgage REIT | NLY | 4/8/2020 | $ 5.75 | 1740 | 12.30% | $0.94 | $ 8.39 | $ 6,229 | $8.50 | 62.26% | |||
| 2xLeveraged Mortgage REIT | REML | 4/8/2020 | $ 2.81 | 3560 | 16.25% | $0.35 | $ 5.54 | $ 10,964 | $6.00 | 109.61% | |||
| New Residential | NRZ | 4/8/2020 | $ 5.60 | 1785 | 12.80% | $1.05 | $ 9.56 | $ 8,942 | $10.00 | 89.46% | |||
| Two Harbors | TWO | 4/8/2020 | $ 4.65 | 2150 | $ 5.5 | 7/26/2020 | $ 1,827.50 | 18.28% | |||||
| New York Mortgage Trust | NYMT | 4/8/2020 | $ 1.85 | 4762 | $ 2.8 | 7/26/2020 | $ 4,285.80 | 48.65% | |||||
| NYMT Preferred | NYMTO | 4/8/2020 | $ 14.80 | 675 | 9.80% | $1.97 | $ 22.6 | 12/6/2020 | $ 6,581.25 | 65.88% | |||
| Cherry Hill Mortgage | CHMI | 4/8/2020 | $ 6.20 | 1613 | 14.98% | $1.48 | $ 10.3 | 7/26/2020 | $ 8,919.89 | 89.19% | |||
| Virtus InfraCap MLP ETF | AMZA | 4/8/2020 | $ 12.56 | 800 | 19.30% | $2.90 | $ 21.00 | $ 9,072.00 | $22.00 | 90.29% | |||
| Antero Midstream | AM | 4/16/2020 | $ 5.60 | 1786 | 19.60% | $1.23 | $ 8.22 | $ 6,876 | $9.00 | 68.75% | |||
| NGL Midstream Preferred | NGL.PC | 4/16/2020 | $ 8.00 | 1250 | $ 16.5 | 7/26/3030 | $10,625.00 | 106.25% | |||||
| DCP Midstream | DCP | 4/16/2020 | $ 5.61 | 870 | 21.80% | $2.35 | $ 20.17 | $ 14,711.70 | $16.25 | 301.43% | |||
| Enable Midstream Partners | ENBL | 4/16/2020 | $ 3.75 | 2667 | 12.50% | $1.05 | $ 5.73 | $ 8,081.01 | $6.25 | 80.80% | |||
| Cash on Cash Yield | 21.20% |
ο»Ώ
Here are the Ultra Income and Ultra Growth links for further inspection--good idea to copy them and keep them handy:
https://transformityresearch.com/ultra-income-portfolio
https://transformityresearch.com/ultra-growth-portfolio
2 MORE MLP Midstreamers That Average 15% Yield (when distributions are normalized) Coming Into 2021-2022 Nat Gas/NGL and Crude Oil Energy Demand "Reformation"
So our "red-headed stepchildren" aka Midstream nat gas/NGL heavy MLPs have outperformed IT by 80% in the last two months--no whoop. Our brave steps into the March meltdown into energy priced as if we were going back to the horse-and-buggy era has doubled our money and we have a few 200% (YEA USAC with $2.05 ANNUAL dividend!) and one 300%+ winner--gotta love DCP!
But now with three vaccines shipping and visions of NEXT year going to holidays and birthdays and a Federal Government that actually cares and is empathetic to the horror of losing family and friends to a disease that basically suffocates its victims to death, we are very bullish on the "Recovery & Re-Opening Q2 2021" trade that we have come to call "The Reformation Trade" as in the reforming of habits and cultural activities that we have shut down, stopped doing and miss terribly.
On cue, Brent crude topped $50 a barrel last week for the first time since March. Things arenβt back to normal yet, but the positive signals are growing faster than the virus. The reality is the enormous glut of fuel that accumulated this year on everything from tiny barges to giant supertankers is being steadily depleted.
While the coronavirus pandemic is worse than ever in the U.S., demand in Europe is bouncing back as the second wave of lockdowns eases and Asia continues to pull in huge volumes of crude.
But thereβs more to this than a realignment of supply and demand -- huge financial flows are also driving the price rally. In a world thatβs expecting to see travel recover sharply next year, crude has become a hot end-ofoCovid-vaccine trade. So--that means it's time to add another set of woebegone MLPs sponsored by little companies like BPMP and most hated MLP of all Energy Transfer.
Energy Transfer (ET)
ET stands to benefit directly with a sustained increase in the price of oil, as around 5% of ET's Adjusted EBITDA is spread/commodity-based. However, the biggest gain will come about indirectly, as ET's customers will be in a stronger financial position to honor their fixed fee long-term contracts (i.e. ET's earnings backlog will be safer).
What's more, a higher oil price will eventually lead to more Oil & Gas CAPEX spending. I also argue that in a Biden White House, nat ga/NGL/oil pipelines will become more valuable given the strong political will and opposition to build new ones. In short, this is NOT the time to bet against ET--and the hedge funds that have made a living since 2015 slamming MLPs short know it.
While Goldman Sachs believes that the next commodity supercycle may already be underway most importantly, ET has a clear path toward free cash flow and returning the dividend to normal. ET's new beancounter-not-wildman management promises to bring debt down "achieving leverage target of 4 to 4.5x and maintain a solid investment grade rating". This promise was reiterated once again in the new December 2020 presentation:
Source: ET 2020 December Investor Presentation, slide 6
It is important to emphasize that ET is a highly diversified company in terms of segments (no segment contributes more than 30% of adjusted EBITDA) and geography (assets in all major producing basins in the U.S.). However, in terms of strategic direction, there is a growing presence in natural gas/NGLs/LNG. I am a firm believer in the important role of natural gas in the future energy mix, and ET is already an important player. ET transports ~25% of US natural gas produced and transports more than 25% of US NGLs produced (achieving record NGL volumes in Q3 2020):
Source: ET 2020 December Investor Presentation, slide 9
Now on the Street, the biggest fear around ET is that primary shareholder Kelcy Warren is going to go back to never seeing a pipeline he did not want to borrow money to build.
To that, I say Mr. Warren was worth over $20 billion in 2015--today he is a relative pauper at $2.4 billion. Having me Kelcy many times at energy conferences back when I covered the nat gas industry, I can tell you this--at 79 years old he is thinking legacy and the good ol' days when ET traded >$50. Also--nobody is going lend him $billions to build more pipelines--and there is very good chance at this valuation a private equity take out at $8-$9 per share get him to semi-retire and find something else to do.
We also got the distribution cut out of the way ( it wasn't really necessary but it helps in terms of deleveraging). Since the distribution cut, the unit price is up by around 30% (don't we know THAT thank you ENBL and DTC and others). But let's not forget--ET is still down by almost 50% YTD. As ET's management team states, we are approaching an "inflection point" as the company is taking significant steps toward "creating more financial flexibility and a lower cost of capital" and expecting to be "free cash flow positive in 2021 after growth capital and equity distributions".
Action to Take: BUY ET under $7 with $15 Target 2022
Here is the last presentation deck
Action to Take: BUY BP Midstream BPMP <$11.25 and 13% Yield with $17.50 Target 2022
MVC β Minimum Volume Commitments
One of the major reasons BPMPβs stock is attractive is that almost 88% (calculated from 2019 data) of its revenue comes from contracted minimum volume commitments with BP America, which indirectly owns BPMP. When converted to dollar terms, BPMP has an assured revenue of $113 million irrespective of whether its pipelines carry crude oil or saltwater, and whether crude oil demand/price goes up or down.
Of the contracted revenues, at least 75% is derived from the BP2 pipeline delivering 300,000 barrels/day of crude oil to the Whiting refinery, whose total crude throughput is 430,000 barrels/day. Whiting refinery is highly dependent on BP2 to deliver a major part of its crude requirement and thus BPMP faces no threats from competition. Regarding the future commitments, BPMP announced its MVC for the next three years in Q3 earnings call as shown below.
Source: BPMP Q3 earnings presentation
BP America accounted for a very high percentage of the total revenue of BPMP (97.6% in 2019, 97.6% in 2018 & 98% in 2017), which implies that the volatility in earnings of BPMP will be very low. In addition, since its IPO it can be seen that volatility in operating expenses has reduced, which again reinforces the stability of net earnings. Both these factors are confidence boosters that, even in the worst-case scenario, BPMP would have sales of around 400 thousand barrels per day.
A key point to keep in mind is that these values are for the worst-case scenario. In all the quarters, since its IPO, BPMP has had more throughput than their MVC contracts. Based on the dependency of the Whiting refinery on the BP2 pipeline, I believe that this performance will continue in the future with Canadian pipelines Keystone XL, TMX and Enbridge Line 3 not even commissioned.
Moreover, BP America completed a modernization project of Whiting refinery worth $14 billion in 2013, which enables the refinery to process Canadaβs heavy sulfur crude, thus elongating its usefulness as an asset.
Conclusion
BPMP presents a unique advantage as an MLP as almost 90% of its revenues are derived from minimum volume contracts and almost 97% of total revenue is derived from its parent BP America. 13% a year in tax-advantaged income is hard to beat with 10-year Treasury bond pays you .89%
OK--we are about through the most amazing year to be a stock market investor and the worst year ever to be alive since WWII.
We wish all our subscribers an amazing holiday with family and friends and safety for all from this final scourge of coronavirus.
Peace on Earth, Goodwill to All and we will see you the first week of 2021!
Team Transformity Research