Investors took one of the biggest shellacking from the market in a year during trading Thursday. This followed a big decline in stocks on Wednesday.
Equities will be volatile throughout the summer as we all discover whether the Federal Reserve will remove some of its massive support that has been in place for years. We also have to see what the ramifications to this "tapering" will be for stocks. In addition, emerging markets like China and Brazil could become a headwind if declines in those markets continue.
I believe this volatility will be a good opportunity to pick up yield at a cheaper level. I look forward to adding to my income portfolio over the hot summer. Following up on my column yesterday, I continue to find good opportunities in the energy sector. In Thursday's big selloff, I added, or started, to build positions in the two energy plays profiled below. Both are cheap, yield over six percent and have solid long-term growth prospects.
Global Partners (GLP) is a midstream logistics and marketing company. The company is responsible for moving 160 million barrels of oil a year as well as filling 1 million automobile tanks with gasoline a day. Despite having over $20 billion in annual revenues, GLP's market capitalization is just over $1 billion as this company thrives in a very low margin business.
This limited partnership provides a distribution yield of just over six percent currently (6.1%). Through a combination of new storage facilities, a few acquisitions and some significant new distribution agreements Global Partners has more than doubled sales in the last five years.
Global is also benefitting from the growing oil production in the Bakken. The company has the only single-line haul rail network from the region to the East and the West Coasts. Trains full of oil going to its Albany terminal is up some 800% over the last few years. GLP is cheap for a six percent yielder at less than 13x 2014's projected earnings and also sports a five-year projected price/earnings to growth ratio of under 1 (.64). Global Partners has a strong balance sheet and hedges the vast majority of its commodity price risk as well.
Seadrill (SDRL) provides offshore drilling services to the oil and gas industry, including drilling, completion and well maintenance. I added to my position in this provider of jack ups and floaters late yesterday as equities cratered. SDRL yields over eight percent and reported that utilization of its floater and jack up fleet was above 95% recently.
It is also expanding its fleet aggressively and is well positioned for the increase of ultra-deep water drilling that is expected to account for the majority of the growth of offshore activity in the new few years (See Chart).
SDRL should clock in with revenue growth in the 10 percent range this year and analysts expect 20% in FY2014 as new rigs are delivered. The stock sports a five-year projected price/earnings to growth ratio of under 1 (.67) and is priced at around 11x 2014's projected earnings. Global Hunter initiated the shares as a "Buy" in early May and the company received some favorable mentions at the Ira Sohn investment conference that month as well.