![]() Once the sector starts showing signs of a bottom in place, it has plenty of upside potential: Similarly, Garrett sees this as part of a correction in the broad midstream space (AMLP). The distribution was cut, and the business structure makes more sense now.Īlthough we don’t have a local bottom and bounce yet, Zac sees ET as being near capitulation: In terms of earnings, I think ET’s bottom is in, back in 2020. As a result, Energy Transfer is becoming acquainted with what it means to have actual free cash flow: Now, after multiple “blow ups” in the space, it’s about value and about self-funding. The midstream used to be about growth- issuing debt and equity to fund new infrastructure. Years ago, MLPs used to be highly-leveraged, but after a number of “blow ups” in the space, many of them have more attractive capital structures.Įnergy Transfer isn’t my favorite pick (that would go to Enterprise Products Partners), but it’s a more aggressive pick. They need their counterparties to be able to pay their bills, but other than that, they mainly just don’t want to see a huge drawdown in volume. However, the midstream sector mainly just stores and transports oil and gas and associated petrochemicals. OPEC+ is raising their output, and the delta variant of the coronavirus threatens to have governments reinstated lockdowns, all of which can put some downward pressure on the price of oil. On the other side of the growth/value spectrum is the midstream sector. If Zoom was a private company and someone offered me the opportunity to buy today and cash out in five years without seeing the price quoted to me between now and then, I’d take that offer as part of a diversified portfolio. Garrett sees the stock as being near the bottom of its technical range: The stock trades for over 30x sales and over 60x cash flow, but has blazing growth potential and is near the low end of its rather brief historical valuation range. Zoom (ZM) is one of those weird stocks that is expensive in absolute terms, and yet nearly the cheapest it has ever been in its history as a public company. Instead, it means I want to buy things with good long-term fundamentals, that are on sale in recent days and weeks. A lot of this market turmoil is happening to clear out speculators in stocks or cryptos that don’t have good underlying fundamentals. That doesn’t mean I want to rush out and buy meme stocks, hoping that I can sell them for a higher price to a fool in a few months. Sometimes I sell early if it gets overvalued, and very occasionally I sell an investment if the fundamentals deteriorate and my fundamental thesis changes, but most of the time when I buy something, I’m buying it as though I’m a private owner of that business, looking to build equity and/or receive cash flows from that business. When I buy something, I’m willing to hold it for 5 years or more to let the thesis play out. The S&P 500 isn’t down too much, but many subcomponents are deeply off their highs at the moment.Įquity investments offer massive long-term returns, but come with volatility risk. We’re not at the worst possible level of fear, but we’re closer to fear than greed. SentimenTrader has a similar model that shows that buying on periods of fear tends to work out well: This is historically a contrarian indicator. This issue of “Where Fundamentals Meet Technicals” focuses on some oversold investments that, while they might not be at their absolute bottom, are extremely out of favor and have good fundamentals.ĬNN’s fear/greed index is showing a lot of fear: While I have fundamental concerns about some assets due to the delta variant and overall economic conditions, or in some cases for valuation reasons, it’s also increasingly clear that many high-quality assets are being offered by the market at a discount. When things are going poorly and asset prices are low, people feel like risk is high. When things are going well and asset prices are high, people feel like risk is low.
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