NuStar Energy LP: Insider Buying Suggests Potential Near-Term Upside For This 8-Percent Yielding Limited Partnership

By: Roger Conrad

NuStar Energy LP (NYSE: NS) CEO Curt Anastasio has frequently remarked that he spends 90 percent of his time talking about 10 percent of his business. That’s not surprising given that the 10 percent is a perennially disappointing asphalt business.

NuStar’s focus for several years, however, has been building up its core energy transportation and storage operations. The company will start up two major pipeline projects in the Eagle Ford Shale later this year.

And it has several other projects in various stages of development that will ramp up cash flows in 2013 and beyond.

NuStar will also take a hit in the second quarter at its fuel marketing operation, which suffered from the sharp drop in oil and natural gas liquids prices.

Management, however, has taken dramatic steps to eliminate future risk, deconsolidating by selling a half interest in the asphalt operation and implementing new policies to fully hedge fuel marketing commodity-price exposure.

The moves required a substantial non-cash writeoff against NuStar’s second-quarter earnings, while subpar results at fuel marketing depressed distribution coverage.

Over the long term, however, they advance Mr. Anastasio’s goal of restoring “above peer” distribution growth by systematically building the fee-based pipeline and terminals business.

And management plans to maintain the $1.095 per unit quarterly distribution in the meantime.

There are more than a few skeptics. That’s demonstrated by generally bearish analyst opinion as well as trend-follower Standard & Poor’s credit rating cut.

Insiders, however, have been net buyers, while Fitch has affirmed the rating at investment grade.

NuStar’s 8 percent-plus yield and hefty capital gains potential make it a solid dividend investing play.