The Sax Angle

What’s more, the technology sector enjoys significant growth opportunities in the years ahead. Mobile devices such as smartphones and tablet computers have transitioned from niche products into the mainstream. As first posted on Investing Daily’s Facebook page, between 2010 and 2012, total tablet sales are expected to more than quintuple. (See “The Tablet Wars.”)
 

Meanwhile, Facebook, Twitter and other social media websites are transforming the way consumers and businesses interact. Just a decade ago, Facebook didn’t exist. Today, this social media powerhouse claims nearly 500 million active daily users worldwide. (See “The Social Network.”)
Here’s a look at one of the more attractive names in tech.
The Nimble Acrobat

Adobe Systems (NSDQ: ADBE) develops and sells products that allow users to share information across all print and electronic media.

The crown jewel in Adobe’s product line is Creative Suite (CS), a portfolio of software tools to create online and printed documents including websites, newspapers, magazines, brochures and books. CS has become the industry standard and many creative professionals learned their craft using CS software. Designers switching to a competing product would have to learn an entirely new software platform, giving CS a high degree of customer “stickiness.”
CS product cycles historically have driven Adobe’s stock price. The company now is selling CS5, with a new version of the software due in May. According to a recent company survey, 40 percent of existing CS5 users are interested in upgrading to CS6, suggesting rapid market acceptance and immediate growth opportunities.
CS6 will introduce new features likely to be embraced by many design professionals as critical, including support for HTML5, a language for structuring content on the Internet. The new software will include tools that facilitate development of mobile applications, as well as tools designed for tablet computers.
CS6’s “Creative Cloud” offering also will allow users to subscribe to CS6 as a software-and-service bundle, reducing the upfront cost of buying the product. Creative Cloud will offer users access to both Mac and Windows versions of all software, providing the option of a subscription model for the company’s highly popular tools.  

Today, MLPs are still in the sweet spot: Not only does the nation face a critical shortage of midstream infrastructure to support growing output from prolific shale oil and gas plays, but most MLPs also have easy access to relatively inexpensive debt and capital.
My favorite MLPs continue to grow their distributable cash flow through acquisitions and organic growth projects, but all my infrastructure-related picks secure commitments from customers before turning the first shovelful of earth for new pipelines, fractionators or gas processing facilities.
In late 2011, some investors fretted that a study linking water contamination to hydraulic fracturing in Pavilion, Wyo. would prompt the government to restrict the practice and derail the shale oil and gas revolution. Fracturing, or stimulation, increases the permeability of the reservoir rock, allowing the formerly trapped hydrocarbons to flow from the reserve rock into the well. This process involves pumping large quantities of water and a small percentage of chemicals into the rock formation at high pressure, which produces a network of cracks. This production technique is critical to unlocking oil and gas isolated in shale and other “tight” reservoir rocks. For more information on hydraulic fracturing, see my Colleague, Elliott Gue’s, Seeking Alpha instablog post, Hydraulic Fracturing: What’s it All About.

In the abovementioned instablog post, Elliot debunked speculation that the Environmental Protection Agency’s “smoking gun” would lead to restrictive regulations on hydraulic fracturing, explaining why the unique situation analyzed in the report had little bearing on activity in commercial-scale shale oil and gas plays.

President Barack Obama likewise put these fears to rest during his 2012 State of the Union address, highlighting the nation’s rising output of natural gas and encouraging its widespread adoption for power generation and transportation. Such an endorsement effectively rules out overly restrictive regulations that would curtail hydraulic fracturing.
Although the government may mandate the disclosure of the chemicals used in fracturing fluid, drilling should continue apace in the Eagle Ford Shale and the nation’s other major unconventional oil and gas plays. Spears & Associates, the preeminent provider of data on pressure pumping, estimates that global spending on this critical service will surge 23 percent in 2012, to $52 billion. Much of this spending will occur in North America.
Frenzied drilling activity in the Bakken Shale in North Dakota, the Eagle Ford Shale in South Texas and other oil-rich plays has enabled the US to grow it annual oil output for the first time in decades. Even more impressive, this increase in overall oil volumes has occurred despite a sharp decline in production offshore Alaska and in the Gulf of Mexico.
Meanwhile, robust drilling in the nation’s shale plays also enabled the US to surpass Russia as the world’s leading producer of natural gas and has dramatically depressed gas prices in the closed North American market. Despite gas prices that continue to hover near record lows, US output has continued to grow. Exploration and production firms have shifted their emphasis from dry-gas fields to plays that also produce large amounts of higher-value natural gas liquids (NGL) that improve wellhead economics.
This upsurge in onshore oil and gas output has occurred in the Bakken Shale and other regions that lack legacy takeaway and processing capacity, while even the Permian Basin in west Texas–an area that’s produced oil since the 1920s–requires additional infrastructure to handle growing volumes. With ready access to capital, MLPs will build much of this midstream capacity.
Despite these strong fundamentals, recent inflows into the Master Limited Partnership space have pushed valuations to frothy levels. We can’t emphasize enough the importance of adhering to our buy targets and taking some profits off the table when a big winner throws off the balance of your portfolio.
Some investors balk at taking some profits in MLP positions that have rallied considerably–after all, no one likes to pay taxes. If you hold your MLP investments in a taxable account, you’ll likely be paying on a cost basis that’s been reduced by accumulated distributions that count as a return of capital.
Investors should grit their teeth and remember that regardless of the tax you pay on your gains, you’ll reap more profit than if you lose some of your paper profits in a correction. Moreover, the 15 percent tax rate on long-term capital gains is the lowest in decades.
If you hold your MLPs in an IRA, taking some money off the table won’t trigger a taxable event. Nonetheless, some investors will rationalize their decision not to take profits by reminding themselves that they’re earning a higher return on their original investment than they could earn by investing new money. But a 10 percent correction in the market could more than wipe out a year’s worth of income from any MLP.
Don’t equate taking profits with bailing out. In these uncertain times, taking what the market gives you will lock in hard-won gains. You can always reinvest the proceeds when stock prices inevitably pull back.