Master Achievement

Two weeks ago, Exxon announced it would purchase XTO Energy for $41 billion.  XTO Energy is a giant natural gas company. It’s the second-largest producer of natural gas in America, and Exxon’s biggest acquisition since it bought Mobil 10 years ago.  Natural gas is cheap, abundant, and produces 60% less emissions than coal.  As electricity demand grows, Exxon thinks natural gas will be the fastest-growing fossil fuel in America.  In other words, Exxon bought XTO because it plans to supply the power industry with natural gas.

There are a number of ways to play this trend.  You could invest in natural gas to play the price of the commodity with UNG.  I do not like this as there is a large supply of natural gas in the U.S.  secondly, you could play the utilities that use natural gas to generate electricty,  This is a good option that appears to be safe over the next 10 years.  A third option is to invest in the midstream natural gas players.  These are the companies that process, store and transport natural gas.  These companies are generally listed as master limited partnerships ot MLPs. 

My favorite way to play this trend is with an ETF:  Fiduciary/Claymore MLP Opportunity Fund (FMO).  This is not a pure-play on natural gas but you get exposure to all pipelines that are a tgoll-road investment.  FMO had a return of 60% in 2009.  It pays a quarterly dividend with a yield of 7.5%.  FMO trades at $18 per share which is a 12% premium to its NAV.  This is an attractive, total return investment for long-term investors.  FMO is 42% invested in midstream gas and 40% invested in midstream oil.  These pipelines will continue to generate cash as long as there is demand for energy.

The preferred tax treatment of MLPs is an added benefit to recieving cash disvidends as these are frequently classified as return of capital which lowers your taxable cost basis.

TOP 10 HOLINGS
as of 11/30/09