Best Stocks of 2016: Energy Transfer Equity is Beaten Down and Ready to Rally

If you’ve read my work for any length of time, you know I’m not a major risk taker. In my experience, slow and steady wins the race. That was my rationale for recommending Prospect Capital (PSEC) in last year’s Best Stocks contest. I reasoned that a diversified private equity portfolio trading at a deep discount to book value was a low-risk investment with a high probability of generating a market-beating return. Between a return to book value and the high dividend, I expected total returns of as high as 40% within 12 to 18 months. Well, we didn’t quite get there, or at least not yet. The value investor’s eternal problem is that a cheap stock can stay cheap for a lot longer than you expect. But at least we were paid handsomely to wait with PSEC’s dividend.

This year, I’m recommending another beaten-down value stock with a high dividend (technically a “distribution” in this case), MLP general partner Energy Transfer Equity (ETE). A look at Energy Transfer Equity’s stock chart will give you heartburn. Serious heartburn. ETE shares lost more than half their value between July and December, as the entire midstream MLP space got hammered. But at today’s prices, Energy Transfer Equity gives us exposure to one of the world’s premier energy transportation company at prices I do not expect to see again in our lifetimes. Furthermore, I believe that much of the drop we saw in December was due to indiscriminate selling by investors fleeing the entire sector rather than due ETE’s prospects.

Source: Charles Sizemore

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