Everything Looks Clearer… in the Rear View Mirror

Brave souls who write about stocks always subject themselves to potential embarrassment if they take a stand on the future movement of their selected company. Including both a price target and a time horizon makes you accountable if things don’t go as predicted.

For that reason many media pundits much prefer to explain what’s already happened rather than sticking their necks out. They would rather justify the (supposed) reasons why a stock recently shot higher or detail the problems that caused shares to plummet.

You can never be wrong speaking about the past.

Boardwalk Pipeline Partners (BWP) offers a prime example of this phenomenon. The units of this master limited partnership (MLP) got hammered in February after the distribution rate was cut by more than 81%, from 53.25-cents quarterly to just 10-cents.

BWP bottomed intraday on March 14th at $11.99, down from a peak of $33 in 2013 and $25.82 as late as January 6, 2014. I didn’t see any articles warning investors to get out of BWP prior to that February plunge.

Names that have already reflected substantial bad news often rebound brilliantly. Did financial writers help people see the upside? Well-regarded research outfit Zacks made Boardwalk Partners its ‘Bear of the Day’ on April 11th as they called it a ‘Strong Sell’.

Here are some excepts from the Zacks report. I highlighted areas that appeared to be good news for investors at that day’s price rather than reasons to sell. The actual language was from Zacks.

On April 15, 2014 Market Watch chimed in with their negative piece on master limited partnerships in general and BWP, in particular.

They said, “…events at Boardwalk Pipeline Partners highlight the underlying risks and complexities in these investments, raising the question of whether these higher yields are really worth it.

Shares of Boardwalk lost nearly half their value in one trading session back in February after the company, which is based in Houston and operates 14,450 miles of natural-gas pipelines and underground storage caverns, cut its cash payouts to unit holders by 80%. The company said its cash flows were under pressure due to a variety of macro factors. It now sports a dividend yield of 2.8% — little more than a 10-year Treasury. So, investors who were lured into the company by the promise of an attractive yield are now wishing they had settled for that plain-vanilla corporate bond.”

It is always easy to be insightful when looking backwards.

Readers of both those columns have be ill-served so far. BWP has been a big winner since March 14th. It hit $16.26 intraday on April 17 before settling back to close at $15.72. BWP is now up more than 30% from its recent nadir in just over one month.

Trading volume has been well above normal on the rise. Option buying activity in out-of-the-money calls has been notable. On Thursday, Apr. 17, there were 1,386 May $17.5 calls traded, a staggering number considering the previous open interest number was just 115 contracts.

Boardwalk’s old holders were dividend chasers that only cared about it for its previously high yield. That crowd has now been replaced by capital gains seekers who view the 2.54% current yield as a bonus to be enjoyed while they wait for a big payoff as the units creep back towards their old levels.

I’ll be surprised if BWP does’t see at least $20 – $25 again within 12- 18 months.

Disclosure: Long BWP, short BWP options