Thursday, February 26, 2009
(Cont'd from above)...

Jim:       We have this one thanks to my colleague, Dave Pelletier, who is at TheStreet.com, where I'm chairman... He runs the terrific stock advisor newsletter, and he tells me what dividends are safe, and which ones aren't. And Dave tells me this one is safe, so I think it's safe...

PBT is one of those energy Master Limited Partnerships (MLPs)... also known as energy trusts... It gets to avoid paying taxes by distributing the vast majority of its profits to you, in the form of a notoriously-big, juicy dividend...

We like energy trusts because, as oil prices increased by 40% in the first half of 2008, the stocks went up like groot... But when oil plummeted 68% in the second half, and natural gas took a 58% decline... these trusts only fell 39%... They give you the upside... They don't give you all the downside... And that's not even including their bountiful dividends...

You capture the upside... less downside risk... That's what Cramericans love...

Now, PBT has been down from a 52-week high of $27.80 to $8. That's the oil collapse...

Now, back when oil prices were at $50 (a barrel), and PBT was a 15.73 stock... That was November 20th... I told you to avoid it, and all the other MLPs...

Uh, the stock's down 49% since then. It's monthly distribution... the dividend it pays to shareholders... that changes with the price of crude... has fallen from 27.8 cents a share in August to 4.35 cents a share in February. That's part of the price of crude collapsing.

But now, with oil prices rising once again, it's time... It's time!... After you dodged a 50% decline, it is time to buy, buy, buy!...

These exploration and production MLPs are a great way to try to make money off the rise in oil. Huge yields. No debt.

Not all MLPs though are created equal... Like the pigs in "Animal Farm," some are more equal than others...

We like the American MLPs more than the Canadian ones because of huge increases in taxes coming from Canada... They're going to eat into your gains...

And, of the American ones, we like PBT because it is especially cheap. The stock is down 41.5% from the beginning of the year. That's on par with other ones like Hugoton Royalty Trust (HGT) and San Juan Basin Royalty Trust (SJT), but those two are 90% natural gas... This one is only 33% natural gas. Natural gas is still a bow-wow... but oil has started to recover...

MLPs like Sabine Royalty Trust (SBR), with a similar mix of oil and natural gas, or BP Prudhoe Bay Royalty Trust (BPT)... neither of which is nearly as good as this... are only down about half as much from the beginning of the year...

PBT should be valued like those other oil MLPs... not like the natural gas ones... and that makes this a nice 57-variety "catch up" play... (holding up a bottle of Heinz (HNZ) ketchup)... Boy, we've got to talk about that stock... that stock is at a 52-week low with a nice yield and everybody hates it...

How do we value a stock like Permian Basin Royalty Trust (PBT)?...

When oil was $50 and headed lower, PBT's share price was almost double its current price. Now oil is at $45, and it's half? It's going higher...

In my book, Jim Cramer's Real Money, that makes PBT an $11 stock that's just masquerading as an $8 one...

The stock's less than a dollar off off its 52-week low, so you're not getting in high... It's priced as though oil is still in the $30s and is having trouble finding its footing... but crude is up 33.5% since the 52-week low of $33.87 in December... So PBT shouldn't be lingering now down here... I think it's bad algebra!...

why else do I like this one?... Or, to be Orwellian... what makes PBT more equal than the other MLPs?...

Production... only down 2%... The average one is going to be down 8%, so we know it's not running out of oil anytime soon...

The yield... This varies with the price of crude... and, to a lesser extent, natural gas... Citigroup is the only real firm that writes (analysis reports) on this... It expects PBT to pay out $1.11 a share in distributions in 2009. That assumes that oil prices will stay at about $44 for the rest of 2009... With that level of distribution, you're getting a 13.8% yield at the current price...

Are you getting that on anything else?... Anything else safe?...

Even if PBT keeps its distribution at very low February levels, which is unlikely given the stabilization increase in oil, the stock still has a very nice 6.5% yield...

Owning PBT reminds me... You know what it is?... It's like owning SPDR Gold ETF (GLD), the tracking stock for gold... but with a dividend.

Here's the bottom line...

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