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GSJK: A Timely Play on E&P Earnings

E&P firms are blowing away the rest of the market


The best description for the current investing backdrop is “uneven.” While the multi-national blue-chip Dow stocks posted a new all-time high last week, the same cannot be said for the S&P 500, Nasdaq and Russell 2000.

GSJK-Compressco-earningsIndustrials and defensive plays have vaulted to new highs, while financials, retail and tech have sorely lagged. Meanwhile, a massive wave of IPOs were brought to market this year, and 44% of those companies going public have broken below their opening prices, which illustrates poor pricing on the part of greedy investment bankers.

But if that’s not enough to keep traders off balance, the amount of merger and acquisition activity that has just crossed $1 trillion in market value is a major vote in favor of the bullish camp. In a truly overpriced world, deals of the magnitude and frequency that are being consummated just don’t happen. They happen because of economies of scale, synergies and accretive aspects of combining large businesses.

These polar-opposite headlines only further add to the confusion that is fostering the “most unloved rally” of all time. In times like these, it is especially important to be ultra-selective in choosing your investments. To that end, I recommend that you take a hard look at oil and gas exploration and production (E&P).

The energy sector has been one of the best-performing all year following a long, cold winter that created high demand for both oil and gas. And that’s just the cherry on top of a huge bullish megatrend for natural gas, in particular; companies like Exxon Mobil (XOM) and Chevron (CVX) are making a huge push to begin exporting liquefied natural gas from the United States so as to take advantage of booming demand overseas.

So in selecting my high-yield picks, it’s easy to see why energy master limited partnerships (MLPs) are a major focus of mine. Interestingly, the small-cap MLPs have outperformed many of the best-known names in the sector while paying out considerably higher yields. It’s a formula that is working well for my subscribers, and as the U.S. energy boom continues, I want to continue to ferret out those undiscovered oil-and-gas assets that are still flying under the radar while at the same time demonstrating strong rates of growth and cash distributions.

One such name is Compressco Partners L.P. (GSJK). While the broad market remains range-bound with a gain of less than 1.5% for the year-to-date, GSJK is up 35% in the same time frame. Compressco provides production enhancement services to the oil and gas industry, where well-positioned companies are printing profits thanks to the domestic-energy revival. Best of all, because the company is structured as an MLP, GSJK is obligated to pay out those profits to investors.

Its chart shows a smooth uptrend with higher highs and higher lows, and even after such a nice run, shares of GSJK still carry a very attractive yield of 6.5%. Most of that is tax-free, no less, because of the pass-through write-offs provided by the MLP structure. The company presently pays out 92% of cash flow in the form of quarterly distributions and recently raised the payout thanks to rising distributable cash flow.

I expect E&P companies like this one to report strong Q1 results, so I’m looking for big things when Compressco posts earnings on Thursday, May 8. Be sure to put GSJK on your watch list, too, as this is just the kind of unique investment that makes a powerful contribution to any high-yield portfolio.

Bryan Perry is the editor of Cash Machine, a newsletter focused on high-yield income investing with the goal of maintaining a blended total yield of 10% across two portfolios. Bryan is also the editor of Extreme Income, which uses the power of historically cheap money to create a leveraged “baby hedge fund” strategy that paves the way to massive profits and 4x greater income.


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