There’s value beyond Warren Buffett’s interest in Kinder Morgan Inc (KMI), which should make technicians and income-oriented investors more inclined to ride the coattails of the legendary investor.
It’s certainly nice to have a legendary investment manager like Warren Buffett on an investor’s side. And as of the end of 2015, that’s the case in KMI stock.
Berkshire’s most recent 13F report for Q4 of 2015 revealed a newly established position worth around $400 million in Kinder Morgan. The stake is still small potatoes for the fund, but follows the company’s investing philosophy to a tee.
The value-centric fund is notorious for finding strong opportunities in depressed companies, which nonetheless offer attractive qualities such as a sizable economic moat, strong cash flow and a deep discount to long-term fair value.
And as the largest energy infrastructure player in North America, KMI offers all of that to investors.
Additionally, for investors that like the idea of staunch institutional support, but still want something more, look no further than Kinder Morgan’s price chart and its options market.
KMI Stock Daily Chart
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First, and as discussed back in December, the stock completed a Fibonacci-inspired two-step, or mirror move pattern, near $14 back in December. The formation developed off KMI’s high near $45 in 2015 and is viewed as evidence of a trend exhausting itself.
The accompanying massive volume during the pattern completion suggests capitulation, another indication the bearish trend is running out of staying power and support for a bottoming process to develop.
Shares of Kinder Morgan ultimately dipped lower over the past three months; but more importantly, a mostly lateral or irregular inverse head and shoulder base was carved out.
Most recently, news of Berkshire Hathaway’s purchase of equity in the company during the fourth quarter of 2015 sent Kinder Morgan’s shares gapping higher marginally above base resistance, which is now acting as technical support.
Whether KMI moves higher from current levels or attempts to break its newly formed support to fill or partially fill the bullish gap isn’t clear. But given Berkshire’s backing and motif operandi of investing when there’s blood in the streets, there’s likely strong long-term support for KMI.
Options for KMI Stock
Given the described bottoming and solid institutional investor support for Kinder Morgan, the April 1 $17.50 buy-write is attractive.
With KMI stock near $18, the slightly in-the-money buy-write can be purchased for a below-market cost basis of $16.65 mid-market. The pricing on this buy-write allows for income generation of 5% if prices remains at or above $17.50.
Additionally, and as the buy-write price infers, this position offers investors a bit of downside protection should immediate technical support falter and additional “blood on the street” opportunities present themselves in the near term.
Disclosure: Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
