Hope your day has been great.

In today’s update:

  • Spotify and Dropbox
  • Newell Brands
  • Pipeline Companies
  • Oil Chart

Spotify and Dropbox: Love Us, We’ll Change. (Bloomberg Gadfly)

These are the two biggest IPO’s so far this year. Ben Thompson’s take on Spotify and Dropbox are a must read if you want to better understand these two companies.

In addition, check out his podcast on Dropbox and Spotify.

My thought bubble

I don’t have insights into either business, however, the Bloomberg article noted that both companies were pitching investors that how they would earn money in the future is different than how they are earning money now.

From the article:

All of the Dropbox customers featured in the video are businesses — tiny, medium and large — not the individuals who make up the vast majority of Dropbox’s paying customers. Businesses also were the featured customers in Dropbox’s financial prospectus to potential investors.

This makes sense. What they provide to individuals, storage, is largely undifferentiated from say Gdrive. I use both. Frankly, I like Gdrive better. It’s not to say individuals can’t make a good business, but in order to grow in the future, they have to find another source of revenue.

Key line from the article:

All stock market newcomers are coin-flip bets on potential rather than current circumstances. Facebook at the time it went public had almost no revenue from mobile advertisements, which now generate nearly all of its revenue.

The bold part is the money line. If you buy their stock(Spotify, Dropbox), you are betting on a different future than currently exists at both companies. Who knows, they both may pull it off.

Newell strikes deal with Icahn to fend off other activists. (WSJ)

  • News aside, as long as $20 holds, I like the upside potential.
  • They are looking to sell some business units that could bring in $10 billion.
  • Mr. Icahn will add four board members.
  • The company is a collection of brands such as Elmer’s Glue, Sharpie markers, Mr. Coffee machines and Graco baby strollers.

Newell Brands-Monthly Chart


Time to give pipelines another look? (WSJ; Heard on the Street)

From the article:

As of Friday, the index was trading at an 8% discount to the S&P 500 on the basis of price to projected funds from operations(cash flow from operations) over the following year, according to FactSet. The only two occasions in the past decade that saw similar discount, In November of 2008 and February 2016, saw rallies of 50% and 60% respectively over the next six months.

Note: That does not mean it will happen again.

However, these stocks fit nicely into our non-consensus framework.

AMLP is an ETF that tracks this space. It indeed is lagging the broader market.

AMLP weekly chart

Infrastructure

Energy infrastructure is made up of three parts. Upstream, midstream and downstream.

Top ten holdings

These are the top 10 holding in AMLP ETF. Tickers in bold.

  1. Enterprise Products Partners LP | EPD | Div Yield-6.84%
  2. Magellan Midstream Partners LP | MMP | Div Yield-6.30%
  3. Energy Transfer Partners LP | ETP | Div Yield-13.60%
  4. MPLX LP | MPLX | Div Yield-7.29%
  5. Williams Partners LP | WPZ | Div Yield-6.79%
  6. Plains All American Pipeline LP | PAA | Div Yield-5.68%
  7. Buckeye Partners LP | BPL | Div Yield-12.50%
  8. Western Gas Partners LP | WES | Div Yield-8.18%
  9. Andeavor Logistics LP | ANDX | Div Yield-9.20%
  10. EQT Midstream Partners | EQM | Div Yield-7.01%

Don’t let these high dividend yields fool you. These stocks do carry non-payment risk.

My favorite chart out of the ten from a risk/reward perspective is Energy Transfer Partners(ETP).

Energy Transfer Partners(ETP)-2 week chart.

Oil

Speaking of energy, oil is consolidating gains above the April 2015 high prints. More gains seem likely, in my view.

Oil-2 week chart

Oil-2 week chart


That’s all for today. Thanks for reading,

Caleb

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