I’ve never liked doing all the calculations required to figure out the performance of my Jubak’s Picks portfolio. Frankly, figuring out the exact gains in positions that have, because of history, come to have radically different numbers of shares and then adding in dividends that change from quarter to quarter is really, really boring. At times in the almost 20 years that I’ve tracked my picks in this portfolio I’ve fallen very behind in this important part of my work here.
But I’ve never fallen quite so far behind as I have recently. And now I’m going to make a crash effort to get up to date. This post will bring me current through the end of 2014. And over the weekend I’ll bring these figures up through the end of 2015. That should let me tackle the first and second quarters of 2016 in the early part of the week.
I’ve had an excuse for my sloth and neglect. Because of a quirk in the way that the original Jubak Picks page was built, changing the performance number in the banner at the top of the page was extremely difficult–indeed impossible without the intervention of the original graphic artist who designed the page. I’ve used that difficulty to avoid a task I disliked. My bad.
With the redesign/refresh of that Jubak Picks page that we hope to roll out this weekend, making that change becomes much easier and my excuse becomes even more lame than it was.
So here’s a quick overview of 2014 in an effort to get up to date.
For the calendar year the portfolio showed a total return of 4.91%. That badly trailed the 13.52% total return on the S&P 500 for the year.
The portfolio started out the year well with a 13.34% total return in the first quarter of 2014, but then lost 3.49% in the second quarter and another 5.56% in the third quarter before limping home with a 1.56% total return in the fourth quarter.
The portfolio finished the year with 7.23% of its assets in cash. That was down from 13.16% in cash at the end of the September quarter but about even with the 7.4% cash in the June quarter.
For the life of the portfolio, which now stretches back to May 1997, the total return was 445% as of the end of 2014. That compares to a total return of 238% for the S&P 500 during that period. Both total return calculations include reinvested dividends. (S&P calculation from Don’t Quit Your Day Job dqydj.com. If you don’t know that site’s many calculators, you certainly should check it out.)
Last year prices for natural gas liquids fell even faster than oil prices did. Hard as that may be to believe. Which is why the price for shares of Targa Resources (TRGP) are down 23.16% for the last twelve months
This year natural gas liquids have recovered faster than oil prices. Which is why the shares of this company, which runs a network of pipelines and storage facilities heavy on the transport of natural gas liquids, are up 62.66% for 2016 through September 2.
From here, on the basis of the company’s last quarterly numbers, the price gains look modest in the next quarter or two. Shares that traded at $43.97 today could hit a target price of $48 or so, I calculate as the price for natural gas liquids and the volumes flowing through Targa’s pipelines stabilize. But the shares do pay a dividend yield of 8.34% and that looks relatively safe over this transition period.
That dividend is why I put master limited partner Targa Resources Partners (NGLS) in my Jubak Picks and Dividend portfolios. And it’s why I’m keeping Targa Resources, the general partner successor to that master limited partnership, in those two portfolios with a target price of $48 by the end of 2016.
(General partner Targa Resources absorbed its master limited partnership in February 2016. The deal gave holders of the master limited partnership 0.62 shares of Targa Resources for each unit they owned of the master limited partnership. This kind of roll up of master limited partnerships has become relatively common in the sector as master limited partnership have seen a tight capital market erode some of their advantages as investment vehicles.)
Second quarter results didn’t remove all my worries about Targa. Volumes of natural gas liquids look likely to fall in the third quarter with the company forecasting that revenue shortfalls will be made up by fees paid by customers canceling their transportation contracts. This obviously isn’t sustainable over the long term and it’s one reason to suspect that dividend payouts won’t increase this year or next. The company estimates that it has hedged approximately 70% of natural gas volumes, 60% of condensate volumes and 20% of natural gas liquid volumes, which does put some foundation under revenues.
Another damper on the share price over the next few months is the 13.6 million in warrants at $18.88 and the 6.5 million in warrants at $25.11 that are eligible for exercise in September. If a substantial number of holders decide to exercise their warrants that would add a substantial number of shares and spread cash flow over a larger universe of shares.
In other words I think Targa Resources is worth holding now for that dividend yield but I don’t think the next couple of months is a time to be buying lots of shares.
(Sorry that it’s taken me so long to change the symbol on this pick to TRGP from NGLS, but was easier to accomplish that change during the transition–scheduled for this weekend–to a new version of JubakPicks.com. That’s been a lot of work–mostly for my developer. Hope you like the visible changes and that the invisible changes result in a measurably faster site.)
Take a Federal Reserve interest rate increase at the central bank’s September 21 meeting off the books.
Today, the Labor Department reported that the U.S. economy added only 151,000 net new jobs in August. Economists surveyed by Bloomberg had forecast the addition of 180,000 jobs.
The Labor Department also revised the June jobs number down to 171,000 from 292,000 but revised the July figure up to 275,000 from 255,000.
All this left the official unemployment rate unchanged at 4.9% and the labor force participation rate level at 62.8%.
A good part of the Fed’s argument for raising interest rates is that a job market near full employment would push up wages (and eventually inflation) and put the economy on a path toward faster growth. That argument took a hit in today’s number too the average workweek declined by 0.1 hour to 34.3 hours while average hourly wages rose 3 cents. That left incomes basically flat for August with July–not exactly the data that you want to see if you’re counting on consumer spending to lift the economy. For the year average hourly wages are up 2.4%. That’s down from the 2.7% rate of increase in the 12 months through July.
Odds for a September interest rate increase fell to 24% after the report, according to calculations from Bloomberg. That was down from 36% before the news. The futures market still sees a 56% chance of an interest rate increase before the end of 2016. Those odds were essentially unchanged from the 59% reading before today’s numbers.
Manufacturing activity in the United States contracted, unexpectedly, in August, according to the Institute for Supply Management’s manufacturing index released today, September 1. The index fell to 49.4 in August from 52.6 in July. That was the biggest drop in the index since January 2014 and was enough to push the index below the 50 level that separates contraction from expansion. The median forecast among economists surveyed by Bloomberg was for reading of 52.
The ISM manufacturing survey was negative across a big chunk of the manufacturing sector with 11 of 18 industries showing a contraction. Not only were current orders weak, falling for the first time in 2016, but order backlogs deteriorated for a second month, reaching the lowest level since January, and signaling further weakness ahead.
The survey results are far more negative than other recent indicators including this morning’s stronger than expected data on initial applications for unemployment and yesterday’s positive report on private sector job creation in August from ADP.
All this left investors and traders scratching their heads ahead of tomorrow’s report from the Department of Labor on the number of jobs created by the U.S. economy in August. Economists have been relatively optimistic about that report, expecting the economy to have created 180,000 net new jobs in August. If tomorrow’s report comes in at that level, then today’s ISM survey on manufacturing becomes a one-month outlier in a generally positive economic chart.
All this is important since the financial markets are trying to figure out if there is a real chance that the U.S. Federal Reserve will raise interest rates at its September 21 meeting. A strong jobs number and other positive economic data are pretty much required for there to be even a slight chance of an interest rate increase this month.
Already a few economists were saying today that the contraction in manufacturing indicated by the ISM survey today had pretty much killed the slim chance of a rate increase in September. That’s probably an overstatement–the ISM survey is extremely impressionistic and is exactly the kind of indicator that can produce a misleading read in the short term.
Still the negative news was worrying to a market very focused on tomorrow’s jobs report and the prospects for Fed action, or not, on September 21.
Yesterday oil prices dropped on fears that today’s inventory report from the U.S. Energy Information Administration would show a big increase in crude inventories.
Today oil prices are down further on the actual report: Crude inventories climbed by 2.28 million barrels to 525.9 million barrels for the week that ended on August 26. That’s the highest seasonal level for crude stockpiles in more than two decades. Analysts surveyed by Bloomberg before the release of the report were looking for an increase in inventories of 1.3 million barrels.
As of the close today, August 31, U.S. benchmark West Texas Intermediate was down 3.28% to $44.83 a barrel. In the most recent rally oil prices peaked at $48.52 on August 19. Today the Brent international benchmark was down 2.75% to $47.04.
Comments from Schlumberger (SLB), the world’s largest oil service company, didn’t help the oil market’s mood this morning: The company expects the drilling market to get worse in the third quarter on a further decline in deep-water drilling activity.
In other anticipatory news, the private ADP employment report showed that companies added 177,000 workers in August. That was in line with economists’ expectations. The Department of Labor will report its figures on August employment on Friday, September 2. Investors and traders and economists are looking to Friday’s jobs numbers for clues on when the Federal Reserve will next raise interest rates. Odds of a rate increase at the Fed’s September meeting have climbed to 27% today from 24% yesterday, according to the CBOE Fed Watch indicator. Odds for a rate increase by the December meeting have now climbed to 58.6%.