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1/27/22 Capitalist Times Live Chat
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Jeff
5:04
Hi Guys,  what is you opinion on these oil plays I own?  Are there any you like better?  PXD, EOG, CVX , SU. ENB, EPD, ET, AND MMP.   Thanks
AvatarElliott Gue
5:04
That's a good mix in our view. PXD and EOG are our favorite shale names right here -- as I mentioned a few issues ago, I slightly prefer PXD but it's a close call. CVX is a solid company...we have XOM in the model because of its slightly better production growth profile, but again we like and have talked positively about both. EPD, ET and MMP are also all in the portfolios.
Eric F
5:05
Seeking Alpha rates IPOOF very high. Do you know anything about this one?
AvatarRoger Conrad
5:05
First off, there are a lot of opinions expressed on Seeking Alpha--I don't think there's a common editorial line. Inplay Oil Corp is up a lot this year, following gains in other oil and gas producers. And the most recent quarterly results (Q3) actually look pretty good, as is also the case for most oil and gas producers given the big jump in prices. On the other hand, this is also a penny stock and its not traded on any major US exchanges. And the split adjusted all-time high is $7,153 per share versus $2 and change now. Bottom line, we're a lot more comfortable with the stocks in our Energy and Income Advisory Model Portfolio and High Yield Energy List. And again, we've just posted a new issue of EIA today that we strongly advise readers check out before investing fresh money in the sector.
Eric F
5:12
I hope you still like AY because Im buying it at this $32 level. Why does this "green" company have such a good yield compared to others?
AvatarRoger Conrad
5:12
Atlantica currently yields about 5.5% after the dividend increase announced in November. That compares with about 4% for NextEra Energy Partners, 4.2% for Clearway Energy and 5.6% for TransAlta Renewables--which at this point are the only US yieldcos and are therefore the best points of comparison. Yieldcos get their growth basically by acquiring operating assets from their parents/sponsors. In my view, they're priced by the strength and commitment of those parents as much as they are by asset quality or past growth rates. NextEra is the blue chip here because its sponsor is NextEra Energy. Clearway has Global Infrastructure Partners, a private capital firm that's also demonstrated its commitment. Atlantica's is Algonquin, which has been more hands off but still supportive. That likely accounts for some of the discount, since Atlantica's dividend is growing more slowly than NEP's or CWEN's. But all are high quality with safe and growing dividends--with the exception of TransAlta due to a facility's foundation
salvatore
5:12
Hi  Guys     I have  oxy warrants , they are good for  seven years. Is there an advantage to selling  or  executing the  warrants  at this time .
AvatarElliott Gue
5:12
Warrants are basically like call options and, in this case, it's a call option with a strike price of $22. Warrants sell for around $18.25 now and OXY is at $37.25. That means the warrants have intrinsic value of $15.25 and have about $3 in time premium. So, generally, you'll be better off selling an option or warrant than executing it because when you execute you give up the time premium.
ron
5:12
A number of our E&P oil companies have had a great run, DEV, EOG etc,  What do you think of OXY at this point in the cycle?
AvatarElliott Gue
5:12
OXY is a favorite of ours. The story here is that this company is paying down its hefty debt load -- most of that debt was taken on as part of its ill-timed acquisition of Anadarko in 2019 (though I think the APC assets are ultimately good assets). Given the free cash they're generating, I see them hitting their leverage targets this year and then announcing a capital return strategy, which should be an upside catalyst for the stock. Ultimately, we see upside to around $60 over the next year.
Eric F
5:14
In Creating Wealth you like WEX but sold because of the price action i believe. Is it still a good company? How about the price now?
AvatarElliott Gue
5:14
I still like the story generally, but I'll need to see how the stock reacts to their next 1 or 2 quarterly earnings calls before I'd consider adding it back to the portfolio. Next release is around February 10th.
arthur
5:16
AQNU  Found it.  I am a bit confused as to what happens if the stock finishes between 15.01 and 17.99.   "The stock purchase settlement rate will be 2.7778 shares per unit if the then current market price is equal to or greater than $18.00 and 3.3333 shares per unit if the market price is equal to or less than $15.00."    https://www.quantumonline.com/search.cfm?tickersymbol=AQNU&sopt=symbol
AvatarRoger Conrad
5:16
The "par" value of the preferred is $50, so the number of common shares exchanged at maturity adjusts within that band to achieve a $50 value. You get the max number of shares if 3.3333 AQN shares are worth $50 or less. You get the minimum if 2.7778 AQN is worth $50 or more. And you get something in between if 2.7778-3.3333 AQN is worth $50. Hope this clears up any confusion.
Tom L
5:21
What is your perspective on Canadian Solar, CSIQ?
AvatarRoger Conrad
5:21
Hi Tom. The short answer is it's a manufacturer of solar components, which means it's in a constant race to the bottom with producers around the world to come up with solar panels capable of converting more solar energy at ever-lower prices. That doesn't automatically disqualify it as an investment. But the stock is trading near a 52-week low in part because there are much bigger and stronger global competitors--and in part because market power has shifted to adopter who have a choice of companies to buy from. The company is also on the wrong side of US tariff barriers and therefore has to compete full out with the Chinese in Europe (80% sales) as well as China. I prefer adopters as I've said.
AvatarRoger Conrad
5:33
Q. Hi Roger. Belated Happy New Year, hope all is well with you and your family. Do you cover Westlake Chemical Partners (NYSE: WLKP) in your discussions re MLPs? I might have missed it if you do but I don't recall seeing/reading about this one in the past. Do you have an opinion about this one?  Thanks, as always for your input.--Chuck B.
 
A. Thanks Chuck. We do cover Westlake in our MLPs and Midstream coverage universe, which you can access from the Energy and Income Advisor website under the “Portfolios” tab. We currently rate it a hold as distribution coverage has been relatively thin and there’s been no payout increase since January 2020. Q3 coverage was just 0.78 times. We expect that to improve for Q4 numbers to be released Feb 22, as the shortfall appears to have been due to one-time factors mostly. But if there’s not improvement, this one may wind up on the Endangered Dividends List.
5:38
Q. Roger/Elliott--what is your current recommendation on BHP? I have some shares and was wondering if this is a good time to add to them. They appear to be well diversified across a wide range of commodities. Thanks for all that you do.--Don C.
 
A. Hi Don. As I mentioned earlier in the chat, BHP Group is our favorite mining stock at this time, including for more conservative investors. Size and balance sheet are always important. And the operating numbers released this month for Q4 look very favorable for the full results to be reported Feb 14, including above guidance pricing for several key commodities and within guidance production. That could lead to a higher than expected semi-annual dividend for payment in March, which will be declared about the same time.
 
As a bonus, the oil and gas production operation is still on track to be spun off and merged with Woodside Petroleum (ASX: WPL, OTC: WOPEY), which will form a stronger and lower cost company just as the energy price cycle is turning higher. I think
6:01
And one last emailed question:
 
Q. Hello, Roger. Thanks for your great advice over the many years that I have been a subscriber! I would like to ask your thoughts on the topic of small modular reactor (SMR) technology, and how it might lead to worthwhile investment opportunities.
I understand that there is a company called NuScale Power that plans to go public this summer. I believe they have at least ten years of actual experience in the field of SMRs, and that their long-term “partner” Fluor Corp. (NYSE: FLR) will have ownership in the new enterprise. What do you think of the long-term potential for SMR’s in general, as well your opinion on NuScale, FLR and/or others in this field?--Lou E.
 
A. Hi Lou.
SMR technology has greatly advanced from where it was just a few years ago. There’s definitely interest, given decarbonization commitments made by governments, electric utilities and others. And given that NuScale has up to now been a part of Fluor, it already has global industry connections needed to make sales. For those unfamiliar, the plan is to take the unit public via a merger with Spring Valley Acquisition Corp, an SPAC, with a target close of “first half 2022.” At that point, it will be named NuScale Power Corp and trade under the symbol “SMR.”
 
Ostensibly, Fluor is taking NuScale public to raise additional cash, so it can scale up in the SMR business. At this point, it looks like there’s sufficient big investor interest to ensure a solid launch. And management has set a target of being “cash flow positive” by 2024.
The big questions are if the company can win actual orders and then execute them on time and on budget. Neither is a given at this point.
 
First, this is a new product. So any company placing an order for an SMR will essentially be a first mover with a new technology. That could be tough decision for managers in a traditionally conservative industry to make, especially with onshore wind and solar projects—which are based on known technologies—requiring typically 12 to 18 months to site, permit, finance and build.
6:02
Second, when the company does win orders, the clock will start ticking on how quickly SMRs can be sited and permitted, so construction can begin. Smaller size should make this easier than building Southern Company’s (NYSE: SO) two new units at the Vogtle site in Georgia has proven to be. But since we are talking about nuclear technology that’s no certainty either.
 
In my view, there are almost certainly going to be ups and downs for NuScale, even in a best case scenario. So we’re better off watching and waiting with this one, rather than jumping in with both feet. If this company and its technology are indeed successful, we should have many opportunities to make profitable investments.
Lou Eppolito
6:03
Hello, Roger.
 
Thanks for your great advice over the many years that I have been a subscriber!
 
I would like to ask your thoughts on the topic of small modular reactor (SMR) technology, and how it might lead to worthwhile investment opportunities.
 
I understand that there is a company called NuScale Power that plans to go public this summer. I believe they have at least ten years of actual experience in the field of SMRs, and that their long-term “partner” Fluor Corp. (FLR) will have ownership in the new enterprise
.
What do you think of the long-term potential for SMR’s in general, as well your opinion on NuScale, FLR and/or others in this field?
 
Lou
AvatarRoger Conrad
6:03
Hi Lou. I hope my answer to your emailed question that I just posted suffices here. SMRs are definitely something to watch here.
Jim N
6:12
HI: Both EXC & T are going to have spinoffs. How many shares of the spinoffs will a person receive if they have 100 shares of the original stock?  Thanks for your fine work.
AvatarRoger Conrad
6:12
Hi Jim. Thanks for those kind words. It looks like Exelon Corp (NYSE: EXC) shareholders are going to receive 1 share of Constellation--the nuclear power and retail energy part of the business--for every 3 of EXC you hold. The spin will take place on Feb 1, with Constellation showing up in various stock indexes the next day.

AT&T on the other hand still hasn't told us what it's doing, which is why I think the stock is still trading at such a huge discount to the sum of what the post-split telecom and Warner Media/Discovery will be worth. We do know the IRS has ruled the transaction will be tax free. And based on reading the tea leaves, it does look like the new dividend will be about 40% less than the current one. Other than that, if you're going to follow my advice to stay with AT&T, we're going to have to be patient.
John C
6:18
have you hear rumors of anything that could come out that might hurt PBA that would be associated with the reason that Dilger left earlier this year? Why leave with no real explanation? Is there a surprise lurking around the corner?
AvatarRoger Conrad
6:18
Hi John. Given that Mr Dilger played such a key role building Pembina, it's not surprising this question has been on a lot people's minds. Management did  update guidance last month that would say otherwise, including indicating a dividend increase this year. And there are many reasons executives leave companies that don't involve impending disaster for investors--in fact very few actually wind up that way, especially in an industry like midstream where revenue is based on tangible assets. I think the release of Q4 results and the guidance update on Feb 24 will be important for the company. But insiders have stepped up purchases, which makes me positive enough on this company to at least wait and see what they report.
Jeff
6:24
How long do you think this super cycle will last in oil.  I know its only a guess.  Thanks
AvatarRoger Conrad
6:24
Hi Jeff. At this point and it's only a guess I think several more years at least. The key issue here is producers aren't cranking up output in the face of almost $90 oil--which is something we have not seen in previous cycles and means supply is likely to lag demand for a lot longer than we might otherwise expect. And there's good reason to expect that to be the case for some time. One is simply investors are rewarding producers that use record free cash flow to pay down debt, buy back stock, pay dividends and even invest outside of traditional oil and gas--and punishing anyone who commits to higher production or even acquisitions. Another is uncertain US energy policy and regulation, which has greatly raised risk of investing. And another is simply worry oil prices will plunge again, should the economy weaken. Boosting output won't immediately end the cycle--in fact supply can lag demand for a long time. But we're certainly not going to see the end until there is more output.
Jeff
6:29
CVX and XOM have run quite a bit.  Is there still more left?
AvatarElliott Gue
6:29
We think so. While these stocks have posted impressive returns since late 2020, that was off an extraordinarily depressed valuation. XOM, for example, only recently (past few weeks) broke back to where it was trading in late 2019. The key is the cycle -- we believe we're in a higher for longer cycle for oil prices and that XOM will produce copious free cash flow over the next few years. Not tough to come to a valuation north of $100 for XOM.
Robert
6:34
If CNP were to be swapped for a position with better potential, what would you consider at this time? TIA
AvatarRoger Conrad
6:34
Hi Robert. I actually like Centerpoint Energy (NYSE: CNP) here, and as a buy so long as it trades under 28. The company is now a pure regulated utility, mostly electricity with some gas. And it has a considerable opportunity to invest in its grid, particularly in Texas, over the next few years that will lift earnings and dividend probably at least 6-8% a year. I think there's considerable upside from selling the remaining shares of Energy Transfer LP the company received from selling Enable Midstream, as the energy cycle moves on. Energy Transfer just raised its dividend by almost 15%.

The two best fresh money buys in any issue of Conrad's Utility Investor, however, are always the Conservative and Aggressive Focus stocks. In the January issue, they were Entergy Corp (NYSE: ETF) for Conservative and PPL Corp (NYSE: PPL) for Aggressive. I also added Hannon Armstrong Sustainable (NYSE: HASI) to the Aggressive Holdings.
AvatarRoger Conrad
6:38
Ok. Well that looks like all we have in the chat queue, as well as from email. We'd like to thank everyone for joining us today. As we had expected, it was quite a robust discussion, and you've given us a lot to think about. If for some reason we did not answer your question fully, please feel free to drop us a line anytime at service@capitalisttimes.com
6:40
As I said at the outset of the chat, we will be sending you a link to a transcript of the complete Q&A tomorrow. And of course, we'll be hosting another one of these next month, so hopefully we'll see you there!
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