Remember this one? The trend is your friend. Or how about this saying? A rising tide lifts all boats?

And when the trend turns against us? When the market plunges, run for an exit until you see blood in the streets (or hear the sound of cannon) and then it’s time to get back in on the cheap.

Yes, markets with strong trends are relatively easy to navigate.

But how about a market without a strong discernable trend to drive stock prices? One that seems at the mercy of news? And that has rallied far enough so that while it’s not especially expensive, it’s not especially cheap either?

What do you do as an investor then? I think that’s the kind of market we’re in right now; one without a strong trend in either direction, but that seems inclined—maybe–to drift higher in the absence of bad news.

You can go for broke, swing for the fences, double down… You can make a big directional bet on the market and hope that you’ve called it correctly. If you’re right in your call, you’ll make out like a bandit. Get the direction wrong with a big directional bet and you’ll feel like you’ve been robbed by a bandit.

Or you can play “small ball” and take what the market gives you as its search for direction creates temporary bargains in individual stocks that you’d like to own for a while. “Small ball” is time consuming. It takes a whole lot more effort to invest this way than to go decide to load up on gold or to short Chinese banks. But in a market that’s searching for direction “small ball” is the best way to make some money while limiting your exposure to getting the big picture wrong.

It has the added value that if, as I believe now, the trend of global stock markets will be a whole  lot clearer in six months than they are now, you will have preserved your capital diligently enough so that you can take advantage of an easier market.

Okay, a brief review of where we are both in terms of the technicals of the market and its macroeconomic underpinnings. And then on to my three “small ball” picks. Read more

In the middle future—say, the next five years—the energy sector landscape looks like it’s going to be very different than forecast just a year ago.

Nuclear energy seems to be, if not dead, on life support. (At least until everyone forgets Fukushima Daiichi. Five years or so?)

Predictable grid distribution problems have hit wind power harder than predicted.

Solar companies are driving costs down and efficiencies up faster than all but the most optimistic advocates forecast.

And while natural gas prices remain so low that it’s hard for gas producers to make a profit, the makers of equipment for generating electricity from natural gas are experiencing boom times.

It’s tempting to put this all down to the nuclear disaster (or near-disaster if your definition of a nuclear disaster requires molten nuclear fuel burning its way toward the earth’s core) at Fukushima Daiichi. The operator of that nuclear plant, Tokyo Electric Power, now acknowledges that three of the plant’s four reactors suffered fuel meltdowns in the days after Japan was hit with a devastating earthquake and tsunami. The company also says that it’s possible that the pressure vessels that house the uranium fuel rods, were breached in the disaster. But “most” of the fuel remained inside the pressure vessels, the company adds not so reassuringly.

It’s tempting, as I noted, to say that it’s the Fukushima Daiichi disaster that has rearranged the energy landscape.  I don’t think that’s the case. Read more

Energy Transfer Partners (ETP) is one of my favorite master limited partnerships. Its natural gas pipeline business coins cash and the yield on these partnership units is a very satisfying 6.8%. The total return (that’s dividend plus price appreciation) has been even more satisfying at 23.2% for 2010 after an absolutely stellar 42.7% in 2009.

But now I think the partnership is near a crossroads.

Just skimming through the company’s presentation at the December 7, 2010 Wells Fargo Energy Symposium will show you what I mean. (http://www.energytransfer.com/PRAttach/Wells%20Fargo%20December%202010%20Presentation%20Final.pdf ) The presentation is a litany of completed pipeline projects. Chisholm will go into operation in the second quarter of 2011. Hermanas went into operation in December 2010. Lumberjack? December 2010. Fayetteville? In service now. Tiger went onto service in December 2010.

So what’s next? Energy Transfer Partners runs a very profitable business but growth for a master limited partnership depends on raising capital, investing in new projects, and then collecting the revenue from those projects.

What I can see at Energy Transfer Partners is a lot of opportunities for smaller infill projects but I don’t yet know what the company sees as its big next steps. Without those big next steps, Energy Transfer Partners will be a very rewarding dividend play. But without that growth, it’s hard for me to see how the partnership delivers the kinds of total returns that it has produced in recent years.

I think Energy Transfer Partners has earned some wait and see time from me and I’m looking forward patiently to the February 17 earnings report and conference call to see what the vision for the future might be. If you own this I’d hold on. If you don’t, I’d wait and see what February 17 brings. In the meantime, as of January 10, I’m raising my target price to $54 a share, from $52, by March 2011.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Energy Transfer Partners as of the end of November. For a full list of the stocks in the fund as of the end of November see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.  I’ll have the fund’s portfolio as of the end of December posted in a few days.

So when is the time to buy U.S. natural gas stocks?

A new analysis from Houston energy investment banker Tudor, Pickering, Holt, reported by Reuters Breaking Views, says late in 2011 or so.

Natural gas prices in the United States are in an extended slump with gas trading at about one-third its June 2008 price. The low prices are a result of a glut of supply—although a collapse in demand during the Great Recession sure didn’t help—that was created by the extraordinary success of the U.S. natural gas industry in producing gas from unconventional sources. New technologies have added reserves of more than 600 trillion cubic feet of gas from tight shale formation to U.S. reserves.

How much new supply is that? In 2007 the National Petroleum Council estimated that U.S. natural gas reserves from conventional sources amounted to 1,461 trillion cubic feet of gas.

Normally low prices would lead companies to cut back on drilling. Why spend the money finding and producing gas if you can’t sell it at a profit? And at the current price of $4.11 per thousand cubic feet (or per million BTUs) most natural gas producers are losing money. Analysts put the full-cycle, all-in breakeven price of natural gas at $6 to $8 per thousand cubic feet.

But not now. Read more

Update Vale(VALE)

And the biggest winner from Argentina’s huge natural gas from shale discovery in Patagonia?

YPF Sociedad Anonima (YPF) is certainly a winner. The find of 4.5 trillion cubic feet of gas is roughly double the Argentine company’s previous proved natural gas reserves of 2.7 trillion cubic feet. YPF already produces some natural gas from four wells at the Loma La Lata field with a daily output of 100,000 cubic meters.

Repsol YPF (REP), the Spanish oil and gas company that controls YPF, is certainly a winner. Media reports, unconfirmed by either company say the find could hold as much as 250 trillion cubic feet of gas. By contrast Argentina’s proved natural gas reserves before the find totaled 12 to 13 trillion cubic feet. (“Proved” is a much more meaningful measure than “reported in the newspaper,” I’d note.) Repsol is planning to sell 15% of YPF in a public offering.

But the biggest winner might actually be Vale (VALE). The Brazilian iron ore giant is moving to become the biggest fertilizer producer in Brazil and it’s new $4.3 billion Rio Colorado project sits in the neighboring Argentine province of Mendoza. To mine potash there Vale needs natural gas, lots of it, and until this find it looked like it was going to have to battle a tight Argentine natural gas market to get the supplies it needed or import it from somewhere. The alternative sources were all either politically iffy or likely to be very expensive. The Rio Colorado project is scheduled to begin production in the second half of 2013 with initial production capacity of 2.4 million tons and the potential for 4.4 million tons.

And now?

It’s clear now how Vale will find the gas it needs. (And in retrospect I doubt this find comes as a surprise to Vale. We are talking about a mining company that’s pretty good at assessing future resource potential.) Vale will invest $150 million along with YPF to begin developing the find with half of natural gas production going to Vale.

This is the second big deal that Vale has signed to secure infrastructure for the Rio Colorado mine. Read more