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BEAM Inc (BEAM), Atlas Pipeline Partners, L.P. (APL): Buying Bernanke’s Breakouts

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It didn’t take long for market losses generated by the Ben Bernanke breakdown to be surpassed in the days following the long July weekend. However, the number of NYSE stocks making new 52-week highs is running well below the prior rally, going fBen Bernankerom 800 new 52-week highs a day in May to sub-600 in July — not exactly a swinging endorsement on the part of buyers. No new highs means no new buyers – a warning sign for market participants.

However, buying opportunities exist for the astute:

Gassing for gains

Atlas Pipeline Partners, L.P. (NYSE:APL) was one of my earliest featured stocks and a former portfolio holding. The stock endured a bit of crisis during the May-June selloff, where it lost 13.8% from peak-to-trough. However, the high dividend yield (just shy of 6% at time of writing) helped bring the buyers back. It’s also looking at a full year distribution of $2.50 and $2.60 a share, which should comfortably see it offer a 6% return.

On the negative front, it carries a relatively high equity/debt load when compared to comparable sized companies like Spectra Energy Partners, LP (NYSE:SEP) or Regency Energy Partners LP (NYSE:RGP). However, the company has offset 2018 notes at 8.75%, with $650 million of notes which mature in 2023 at 5.875%: an amount which is half of its long term debt value. Even so, the company is expecting borrowing costs to increase for 2013, which will have a negative impact on earnings.

Earnings were up 6% to Q4 2012, but it’s trading rich at its current P/E, and with a forward P/E of 17.5 it’s not exactly a bargain. This leaves it vulnerable to downside earnings surprises – a feat it has managed in the last three quarters. Borrowing expenses for the remainder of the year is likely to increase this streak, but it should be okay as long as it can maintain or increase distribution payments. The best driver for the company is going to be rising natural gas prices. With the company converting to fee based and percent-of-proceeds contracts, it will be better able to leverage this rise. And after a lengthy spell in the doldrums, natural gas prices appear to have found their bottom at $2.00/MMBtu.

Profit shots

BEAM Inc (NYSE:BEAM) has the meanest dividend of the three stocks we are discussing, and is the one furthest from its 52-week high. I first featured the stock in February as it looked to U.S. and emerging markets to drive its 2013 earnings story.

The current earnings year opened brightly with a 3% rise in comparable sales to add to the 13% achieved in Q1 of 2012, its weakest quarter. North America again delivered strong growth with a 7% rise in comparable sales: increasing margins on the back of savings in raw materials and higher product pricing. Its premium Maker’s Mark brand coming ahead of expectations in sales. The net effect was to deliver a 21% gain in EPS on top of the 29% achieved in 2012. Ironically, the furor over the (non-)proof change in Maker’s Mark led to a 44% increase in comparable Q1 sales! Rival Diageo delivered 6% growth in the U.S. with spirits the “key driver” in this market. Diageo too raised prices, which points to the robustness of the liquor market.

The company was cooler on its emerging market story with Russia, Mexico and Eastern Europe doing the leg work as China and Brazil slowed and India declined. Price increases were also implemented in these markets which were supported by rival price hikes.

Government payout

Electro Rent Corporation (NASDAQ:ELRC) was offered as an income player but has performed nicely as a growth stock: mixing new multi-years price highs with a 4% yield.

The erratic earnings history hasn’t helped, outperforming when expected to underperform and vice versa. In the most recent quarter the company fell shy of analyst estimates, although it generated a 7.6% year-on-year rise in revenues and a 12.2% rise in equipment sales. Government commitments were hit by the wind down in Afghanistan and Iraq before the sequester kicked in – so earnings pressures remain.

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