• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

The First Fallen Angel of the Year

But Boardwalk Pipeline Partners still has wings.
By TIM MELVIN Feb 20, 2014 | 02:30 PM EST
Stocks quotes in this article: BWP, JCP, RCII

The stock market is trying to climb back to even on the year after a brief bump of a sell-off in January. We all know the exciting stories that have been driving gains for the past few weeks as stocks like Facebook (FB) and Tesla (TSLA) have regained momentum and are surging higher. As a value guy who believes that corporations have actual value and stock ownership represents more than a betting slip in the world's longest-running popularity contest, I cannot fathom owning those shares, but I'll save that story for another day. I'm more interested in stocks that have been creamed so far this year, fallen below asset value and might now be bargains with superior long-term potential.

Boardwalk Pipeline Partners (BWP) has seen its shares absolutely blow up so far in 2014. The Master Limited Partnership's stock is down 48% this year after slashing its dividend by about 80%. An increase in production from the U.S. natural gas industry has caused prices to fall. It doesn't look like business conditions will improve anytime soon. Chief Executive Officer Stanley Horton said recently on a conference call, "Because our transportation and storage revenues are continuing to face substantial market headwinds, we do not perceive these conditions changing appreciably over the next 12 to 24 months." The dividend cut caught yield chasers by surprise and they have exited the stock in droves, driving the shares down to just 80% of book value.

There are headwinds for the company, and there's a good chance it is just the first of the pipeline-and-storage MLPs to cut its payout. But the company has an ace up its sleeve in the form of the majority ownership of Loews Corp. (L), the conglomerate managed by the Tisch family. Rather than taking on more debt or issuing new shares, Boardwalk has obtained financing directly from its parent company on favorable terms and operations will not miss a beat. The Tisches are patient and intelligent investors who see the bigger picture and are unlikely to do anything rash in response to the current weakness in the business. Some have speculated they may sell the pipeline partnership, but it will be on terms favorable to themselves.

Business conditions may not be perfect, but this company has some valuable assets. It owns 14,410 miles of natural gas and liquids pipelines and underground storage caverns with an aggregate working gas capacity of approximately 201 billion cubic feet and liquids capacity of approximately 18 million barrels. Its pipelines originate in Gulf Coast region, Oklahoma and Arkansas and extend north and east to Tennessee, Kentucky, Illinois, Indiana and Ohio. Pipelines are not easy to build these days, so existing networks become all the more valuable.

Wall Street analysts usually flee from falling angels like Boardwalk, but instead they are praising Loews for taking the most financially conservative approach to dealing with the slowdown. Analysts at Morgan Stanley were quoted in a recent Barron's article:

"With a weaker outlook, the company had two choices -- moderately cut the distribution and risk funding growth capital projects -- in part -- with dilutive equity offerings (given the likelihood of a lower unit price), or very substantially reduce the quarterly distribution rate, but be able to fund the capital plan internally. Loews, as the quintessential long-term holder, chose the latter course of action, although this obviously has had a significant near term negative impact on unit price. Over the long-term, we believe that [Loews] has made the better choice, preserving maximum value."

I agree with the analysts for a change. The company has assets that are close to irreplaceable, deep-pocketed and patient majority owners and time on its side. The demand for natural gas will inevitably increase over the next decade and business conditions will eventually improve. At 80% of book value, the stock is too cheap not to own.

There's a lot of junk on 2014's list of falling stocks. J.C. Penney (JCP) makes the cut with the stock already down 34% this year, but I have no interest. There isn't an adequate margin of safety, no matter how cheap the stock may be. And Rent-A-Center (RCII) is intriguing with its stock down 25% but not yet at a sufficient discount to tangible book value. But Boardwalk Pipeline stands out as a gem and a bargain issue, with a margin of safety and solid upside.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Melvin  had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Energy

More from Energy

No Longer an 'Aristocrat,' This Dividend Stock Still Looks Pumped

Bob Ciura
Feb 25, 2021 2:30 PM EST

Suncor Energy has a bruised but energizing 3.0% yield.

As Plug Power Plummets, There Appears to Be More Risk Ahead

Bruce Kamich
Feb 25, 2021 2:03 PM EST

Let's check out the PLUG charts as traders react to the latest EPS numbers.

This Refinery's 5.8% Dividend Yield Is Betting on a Recovery

Bob Ciura
Feb 19, 2021 12:30 PM EST

Valero Energy's dividend has not been cut, despite hard times. There is the possibility for outsized returns from a quicker than anticipated bounce back in demand, but clear risk remains.

Looking for an Energy Boost? Try Royal Dutch Shell's 3.5% Dividend Yield

Bob Ciura
Feb 18, 2021 12:32 PM EST

Shell suffered along with the rest of the oil and gas sector last year. But it could be a good dividend play once again.

First Solar's Charts Are Showing Some Cracks

Bruce Kamich
Feb 18, 2021 10:05 AM EST

It looks like FSLR has started a move lower.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:32 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Navigating a Market Correction
  • 11:29 AM EST GARY BERMAN

    Where Does the Nasdaq Go From Here?

    Where does the Nasdaq Composite (CCMP) index go fr...
  • 12:31 PM EST GARY BERMAN

    Has the Short-Term Top Come for the XLF/Banks?

    The has triggered a long-term overbought signal ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login