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Portfolio Update

High-Grading the Portfolio

By Roger S. Conrad, on Dec. 10, 2014

In the Nov. 24 issue of Capitalist Times Premium, we explained our strategy for populating the Lifelong Income Portfolio. (See Answering the Call: Tactical Maneuvers for 2015.)

With so many best-in-class names trading at elevated valuations at this stage in the bull market, we’ve primarily focused on undervalued laggards that have what it takes to overcome their challenges and outperform.

This approach has delivered outsized gains in several positions.

Most recently, we closed our position in Kinder Morgan Energy Partner LP (NYSE: KMP) for a 35 percent gain. Kinder Morgan Inc. (NYSE: KMI), which closed the blockbuster acquisitions of its associated master limited partnerships (MLP) the day after Thanksgiving, took its place in the Lifelong Income Portfolio.

Enbridge Energy Partners LP (NYSE: EEP) received a lift when its sponsor and general partner, Canadian midstream giant Enbridge (TSX: ENB, NYSE: ENB), unveiled plans to accelerate the transfer of its US pipeline assets to the MLP—a move that would result in significant distribution growth.

We sit on a 40 percent gain in this stock, and its turnaround story continues to gain traction. Enbridge Energy Partners LP rates a buy up to $42 per unit.

Weak crude-oil prices haven’t diminished the strength of regulated utilities or real estate investment trusts. Not only do both groups arguably benefit from the stimulatory effect of lower oil prices, but also income-seeking investors have rotated out of the energy sector into these stocks.

However, at these levels, investors should stay disciplined and adhere to our buy targets to avoid overpaying for our favorites.

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