Barron’s Wrong on Kinder Morgan

The past weekend Barron’s wrote a critical article of Kinder Morgan, Inc. citing by Kevin Kaiser of Hedgeye who was critical of the company in an earlier article Barron’s featured on February 23rd, 2014. The article wants readers to believe that there are real problems with MLPs and that the article’s author Andrew Barry and Kevin Kaiser got it right and investors in Kinder Morgan may be in peril. Kaiser writes research and is paid for commanding the attention of his clients just as Andrew Bary wants to impress and captivate Barron’s readers.
What I find misleading is the original article suggested that Kinder Morgan played fast and loose with its accounting and sanctimoniously suggested: “OTHER ENERGY COMPANIES operate more conservatively. Denbury Resources (DNR), a Texas company that uses the same CO2 technique for extracting crude, rejected the idea of forming an MLP last year and therefore refused to play the sustaining/expansion capital game.” Since then Denbury Resources (DNR) declined from 16.25 to 3.58. That is a 78% decline on Barron’s recommendation based on their thoughtful accounting insight.

“BARRON’S WROTE CRITICALLY ON Kinder Morgan in a cover story early last year (“Yield of Dreams,” Feb. 24), when the stock was around $33.” The reason Kinder Morgan is down is because of the huge decline in oil prices which has put the brakes on the US shale boom. The February article made no prediction of a historic decline oil prices. Neither Kaiser nor Bary are stupid. They have been right on Line Energy, an upstream Exploration and Production company, which we too have been critical of because its business model is highly sensitive to oil prices. Boardwalk Pipeline Partners, which was also mentioned, tanked, but not due to slick accounting or pipelines not being stable business models! We sold Boardwalk Pipeline Partners when we saw they were not covering their distribution. In fact, Boardwalk crashed because they were transporting natural gas north where the Utica and Marcellus shales are producing the cheapest natural gas in the country! Perhaps, Boardwalk should have reversed its pipeline flow?
Unfortunately, it seems that this piece claims research insight that is not entirely deserved. However, I am sure it helps Barron’s sell magazine subscriptions and shorts to cover at favorable prices.
On September 14, this year, Barron’s featured Alibaba as a company that could fall another 50% citing sketchy accounting and business practices. Alibaba stock closed at $64.63/share on September 11th and is currently $84.67/share, up 31% in six weeks! Note worthily, both Alibaba and Kinder Morgan were dealing with corporate actions which would put downward pressure on these companies. Alibaba had a share lockup ending and Kinder Morgan has just floated a convertible preferred offering. So clearly these articles aren’t helping the issuers nor the investors in these stock. The question is who are they helping?

I am a longtime fan of Barron’s, but, unfortunately, believe individuals can be easily dissuaded by a negative article from a credible company like Dow Jones & Company, Inc. Hopefully our readers will not be unduly influenced by this recent negative piece on Kinder Morgan, Inc. We think Kinder Morgan should be bought and take comfort in the fact that Richard Kinder has made billions for himself and investors since he made the defining career move to start Kinder Morgan and part with Enron before they became an iconic fraud—a bit of history, I believe, Richard Kinder will never forget.


Tyson Halsey CFA

November 2, 2015

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