Crosstex Energy, Inc. (NASDAQ:XTXI)Q: Hi Chip, Regarding your SmarTrend analysis of Crosstex Energy, Inc. (XTXI): What is your opinion of the stock over the next year or two? I think the stock has great upside potential when natural gas prices take off (which I think may happen, at some point in the not too distant future). Do you agree? Thanks, Randy
A: As background, XTXI is a master limited partnership (MLP). Not sure how familiar you are with MLPs but they distribute their earnings and in order to be able to maintain a certain level of distributions, they will hedge the price of natural gas. So if natural gas prices take off, you will need to see where the company has sold its production in the forward market to be able to judge if higher natural gas prices will impact distributions which will ultimately impact the unit price of an MLP. Also, I believe XTXI discontinued its distributions which you may want to investigate further.As to your specific question, we issued a Downtrend alert on XTXI on 6/22 at a per unit price of $3.62. The company has traded sideways since and is trying to rally but our proprietary momentum indicators (NBDV and IBDV) are split – one moving lower and one moving higher. We need to see both rising before an Uptrend is confirmed.
If you are looking for stocks that are levered to the price of natural gas, perhaps something outside of the MLP universe may be better as MLP investors tend to value the income that some generate. Stocks like EOG and APA that generate a substantial part of their revenues from natural gas production may be closer tied to underlying nat gas prices which should go up if you believe natural gas has hit a bottom here.