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Cramer: Sell Block: The Dangers of Master Limited Partnerships

The following is an unofficial and edited transcript from Thursday's "Mad Money."

This is the most difficult market we've ever seen, we're just here to help you try and make some money. The show recommends that you own a lot of high-yield stocks, because their dividends are a cushion and a source of cash that's invaluable in this environment.

A lot of good high-yielders are energy oriented Master Limited Partnerships-these are companies that get tax favored treatment as long as they distribute the vast majority of their profits to shareholders in the form of a big, juicy dividend. Kinder Morgan Energy Partners,, and Energy Transfer Partners are two companies that operate pipelines and pay out big dividends.

But not all energy Master Limited Partnerships are created equal. We've tended to talk about two kinds of energy MLPs: exploration and production plays on the one hand and gathering and transportation plays like KMP and ETP on the other. Obviously with the price of crude at $49, you want to avoid the MLPs that rely on producing and selling oil and natural gas too, like Linn Energy and Permian Basin which have become more risky than they were when we last discussed them because of this energy collapse. These aren't the worst though, many of them are hedged, so they can withstand lower prices.

What you really need to worry about are dangerous members of a third kind of MLP: the gathering and processing MLPs that are unsafe. In general these companies collect the natural gas that comes out of a well, dehydrate it, treat it, make it worthy of long-distance pipeline transmission, and sometimes convert it into natural gas liquids, which are the feedstocks like ethane used in chemical plants.

A company like Kinder Morgan Energy Partners has a safe business because it just gets paid for pretty much running a toll road-for the volume of gas that goes through its pipes. Not so for these other, more dangerous MLPs. So who are they?

The three MLP's that are new to the sell block are Williams Partners , Atlas Pipeline Partners , and DCP Midstream Partners . Crosstex Energy , a similar MLP, already cut its distribution on October 31st, knocking the stock down 14.5% in one day, and it's fallen another 64% since. The other three may be forced to cut their distributions too and follow in Crosstex's footsteps. Mad Money has recommended Atlas Energy Resources, ATN in the past, a sister exploration and production company to Atlas Pipeline Partners, but sadly it's been "crushed."

One more order of business in the sell block: the life insurance companies - Hartford , Lincoln , Prudential , and Principal Financial , which were in last week's sell block because of a very negative, very thorough piece of research from Goldman Sachs , and all have taken a nasty bruising over the last week. The Goldman report came out on November 11th--from the day before that, Hartford is down 62%, Lincoln down 74%, Principal down 61% and Prudential down 56%.

Also in the video: one of the Sell Block companies takes exception to Cramer's assessment and responds, with mixed results.


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