Every week, Marc Chaikin applies his groundbreaking analysis to an ETF or a sector. Today, he looks at First Trust North American Energy Infrastructure (EMLP).
The First Trust North American Energy Infrastructure (EMLP) had a relatively mild 12% decline from its August peak to October lows at 23.75. The subsequent rally which has carried the EMLP up near its previous peak is in sharp contrast to the poor performance of other energy stocks and ETFs which are struggling to regain 50% of their steep September/October declines. The EMLP ETF has been outperforming the market since early April. It represents an eclectic mix of gas distributors, electric utilities and oil & gas production companies.
Buy EMLP on any short-term pullbacks and look to buy the best stocks based on the Chaikin Power Gauge stock rating model, in the EMLP as well.
The First Trust North American Energy Infrastructure (EMLP) has 8 bullish Power Gauge rated stocks vs. 8 bearish rated stocks, as indicated by the Chaikin Power Bar for the EMLP below. With the energy complex so weak, this ETF stands out both for its relative price strength and the number of bullish Power Gauge rated stocks.
The EMLP can be bought on any pullbacks of 1½ to 3 days and is a better alternative, in my view, to bottom fishing in weaker energy ETFs. There are also potential gains in buying the strongest stocks in the EMLP based on the potential of the Chaikin Power Gauge stock rating model.
The Chaikin Portfolio Health Check is an excellent tool to help zero in on the strongest stocks in any ETF; in the First Trust North American Energy Infrastructure (EMLP) there are 8 bullish rated stocks.
By looking at the individual component stocks through the lens of the 20 factor Chaikin Power Gauge stock rating, you can easily find the stocks in the EMLP ETF with the strongest price potential over the next 3-6 months. These are the stocks to buy as they are likely to outperform the FBT as well as the overall market.
The Chaikin Power Grid in Portfolio Health Check (see below) maps stocks and industry groups from strong to weak so you can easily determine the best and worst stocks in any ETF. To find the strongest stocks in the EMLP, we look to the upper right quadrant of the Power Grid (strong Power Gauge stocks in strong industry groups) where we find stocks with the best potential for price gains over the next 3-6 months. There we see stocks like Atmos Energy Corp. (ATO), American Electric Power (AEP), CMS Energy (CMS) and Alliant Energy (LNT).
Over time, strong stocks in strong industry groups will outperform the market.
One stock to buy on weakness in the EMLP is Atmos Energy (ATO). ATO distributes and sells natural gas through its own distribution system in the mid-west and southern states. It also distributes natural gas for other companies through its pipeline network. The company recently reported a better than expected 4th quarter earnings report and guided analysts higher for the full year 2015. Analysts have subsequently raised their estimates for 2015, which has helped the stock move to new highs.
ATO serves over 3 million customers from the Rocky Mountains to the Blue Ridge Mountains and is the nation’s largest natural gas only pipeline. With a very cold winter expected in the mid-west, Atmos Energy should see a tailwind for their business. The company recently increased their dividend with the stock now yielding an attractive 2.73%.
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