As much as Jim Cramer would like to think the price of a stock is purely driven on fundamentals of the company, he reminded himself that, unfortunately, that is not the case. Sometimes, other shareholders can stir the pot, and if you follow the other shareholders—then you are in trouble.
“There is nothing worse than owning a stock alongside a big hedge fund that is being forced to liquidate all of its positions, because no power on Earth can prevent that stock from going lower, at least until the hedge funds are finished selling,” the “Mad Money” host said.
Just take one look at what is happening with the oil and gas master limited partnerships, and Cramer’s point is clear. This group has been getting crushed, and Cramer suspects that there is a fund out there that owns the MLPs that is causing the problem.
Perhaps the fund either borrowed too much money, or it is facing massive withdrawals and desperately needs to raise cash. Thus, it is selling these stocks every day.
Essentially this means that the liquidation of oil and gas MLPs that is happening has absolutely nothing to do with the actual fundamentals of the companies being sold. It is because of a moronic hedge fund that is out there selling everything it can.
With oil closing below $50 on Thursday, the lowest price since March, Cramer thinks that the U.S. needs all of the pipelines it can get. Oil transport by train costs $13 more per barrel than oil by pipe, thus with crude at these levels pipelines are especially needed.
It is clear to Cramer that the lower price of oil or gas will impact the MLPs that have direct exposure to pricing the most, and that is the minority of the group.
So, this gigantic liquidation of MLPs has nothing to do with the fundamentals of the companies and has everything to do with the fundamentals of money management. The issue here is etiquette!
In Cramer’s perspective, the problem is that no one is publicly allowed to say “it’s this fund, he’s in trouble, he’s doing the selling and we are going to destroy him by short selling all his positions into oblivion until he capitulates.” But that is exactly what is happening.
Looking at the stocks of Williams Partners, Williams Companies and even Energy Transfer Partners itself, Cramer is sure it all traces back to one giant liquidation, because the actions taken by these companies indicate solid fundamentals.
These companies are not signs of problems in the industry. In fact, the lower some of these commodity prices go the more pipelines the U.S. needs. Especially as they begin to replace other fuels such as coal.
But these master limited partnerships don’t do buybacks and depend on their yields for support. That methodology is not working right now because of the forced selling. No one in the industry will talk, so investors cannot find out who is doing the selling or when it will stop.
“While we don’t know when this forced selling will end, I do think that we will look back and wonder ‘How did they ever get so low?’ Which is why, if you are willing to take a few more days of pain, I think this is the time to buy the pipeline MLPs,” Cramer said.