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1/31/23 Capitalist Times Live Chat
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AvatarRoger Conrad
1:53
Greetings everyone and welcome to our Capitalist Times live webchat for January, 2023. As always, there is no audio. Please type in your questions and Elliott and I will get to all of them as soon as we can comprehensively and concisely. We will be sending you a link of the complete transcript of the Q&A after we conclude, which will be when all questions in the queue have been answered, as well as all those we received prior to the chat.
1:54
Thanks again for participating. Let's start with some the pre-chat questions:
Q. Hi Roger: I've been parking cash in VMFXX. It's great but can you
recommend an ETF that serves this purpose? I'd prefer to be able to exit the Money Market and buy some stocks without waiting until the next day. Regards—Kerry T.
 
A. Hi Kerry. I don’t have any money market ETFs to recommend to you at this time. There are some Ultra Short Duration ETFs, including an Invesco Fund traded as “GSY.” But I’m not sure there are really any advantages to using this as a place to park cash versus a conventional open-end money market fund. Mainly, you’d be paying a commission for buying and selling. Also, all ETFs also have fees,
1:55
and they’re by and large higher than those charged by open-end funds.
 
If your priority is having funds available for intraday trading, my best suggestion would be just to stick with whatever sweep account your brokerage has. The yield difference shouldn’t be meaningful and there would be none of these itinerant issues. I would also say that if you’ve investing in a money fund to follow my advice in our long-term publications, the conditions of pulling money in and out of a money market fund shouldn’t make too much difference—if any at all.
 
 
Q. Roger, Elliott. I would like your opinions of the US LNG export market to Europe once the Russia/ Ukraine conflict resolves? Cheniere Energy (NYSE: LNG), Cheniere Energy Partners
(NYSE: LNG) Chevron Corp (NYSE: CVX), Shell Plc (NYSE: SHEL), Sempra Energy (NYSE: SRE), ExxonMobil (NYSE: XOM) and Total Energies (NYSE: TTE) all have substantial LNG operations & shipping to Europe. What companies have most likely long-term growth with and without Ukraine conflict? Keep up the good work, chats and insights.--Jim D.
 
A. Hi Jim. Good question. The key here is the business of building and operating LNG export facilities is fundamentally long-term. Mainly, it takes several years even in a best case to site, permit, finance and build new capacity, especially when its in an entirely new location or so-called “Greenfield” LNG. Then there’s the needed midstream infrastructure to support it, which must be able to connect areas of prolific reserves—like the Permian Basin of west Texas but also the Marcellus in Appalachia—to the coasts where it can be made ready for shipment.
 
Given these lead times and the expense involved, no one builds new capacity unless it’s long-term contracted in advance.
Existing LNG facilities in the US are seeing great traffic that conceivably could be less some day if Russian gas re-enters the European market. But the existing capacity at these facilities is also now heavily contracted—so the owners will continue to get paid. And whatever new capacity is under construction now is similarly already secured by long-term contracts.
 
Bottom line: No one has any idea when or even if Russian natural gas will flow to Europe again as it once did. But the existing US LNG export facilities and the ones being planned and built now will all be secured by contracts for decades to come.
 
 
Q. Gentlemen. First of all, thank you for these live chats. They are a great opportunity for us subscribers, and I'm sure they take a lot of effort on your parts. Now on to my question: I own Cogent Communications Holdings (NSDQ: CCOI) and noticed it has been moved from a buy to a hold. I haven't been able to find a reason for the rating change on the website. Can you please elaborate? Thanks!—Bob D
1:56
 
 
A. Hi Bob. The main reason is the recent pop in the stock to a level where the yield isn’t really that attractive. But I’m also wary of the company’s dividend policy in a year where recession is a real possibility. The primary business here is hooking up buildings to fiber broadband. Demand has been robust to date. But this is also a business where competition is heating up, especially from the US Big Three—T-Mobile US, AT&T and Verizon. And they have much bigger balance sheets and wider reach to do the job than Cogent does. It’s essentially the same problem every other company in the communications business has. And the potential for margin pressure makes it very difficult for companies paying dividends that aren’t Verizon or AT&T.
 
Connecting office buildings also has question marks, given we’re really yet to see a post-Covid lockdown work balance emerge. This is a challenge noted by Cogent’s CEO in recent earnings calls. And though the company has dealt well so far, there’s no assurance it will be abl
able to indefinitely if we do see a shakeout in the office property market—which in any case is likely to weaken further in a recession. Finally, the company has a lot of floating rate debt, the cost of which is much higher than it was a year ago. Bottom line: I see a lot more risk relative to reward with Cogent now than I have in recent months. Hope this answers your question.
 
 
Q. Roger. I need your current view of the never-ending nuclear snags in Georgia. I read accounts in the Atlanta Journal Constitution that talk about how basic the missing pipe components are to a nuclear operation. And the fact that they were missing makes me question the integrity of the construction capabilities of the two delayed over budget plants much delayed under construction. What are the risks of yet again more delays and cost overruns to the stock? Thanks—Gary J. 
 
A. Hi Gary. This incident in and of itself doesn't appear to be such a big deal--basically the current prognosis is a one month delay in startup at a cost of
$15 mil or a penny a share to 2023 earnings. The risk is obviously that this takes significantly longer to repair than the now estimated one month and/or that more problems are discovered in testing that lead to further delays and more costs.
 
Southern has agreed to absorb all of these costs as part of its deal with its partners as well as Georgia regulators. On the other hand, the company should be able to learn from what's happened with Unit 3 to prevent a repeat in the process on Unit 4--so it may be they can balance off these costs when it comes to the entire project. And this incident was announced more than two weeks ago, so the lack of additional news on the situations can be interpreted as good news.
 
As shareholders, the Vogtle startup is critical and it's why I haven't raised the buy target on the stock from 70 to date--and above 65 up until very recently. There are going to be a lot of questions asked during the earnings call on Feb 16--and possibly we'll hear some news beforehand.
 
1:57
 
To be clear, I don't think we can rule out further delays and higher costs for the project before the plant starts up--management has said as much recently in fact. And this project still has many critics--including a lot of people who believe nuclear is not a viable long-term power source. It’s a safe bet they’re going to continue to point out the flaws in the press, most probably long after startup as well.
 
But this is also far from the biggest disruption/cost increase we've seen on this project. And so far at least, it appears Vogtle is still going to be in operation this year. So no change so far in my advice, which is buy up to 70 for those without positions.
 
 
Q. Hello Roger, are there any good investment opportunities in the fusion space even though they might be risky? Is there an ETF that specializes in clean energy innovation? Thanks!--Robert N.
 
A. Hi Robert. Unfortunately, so far as investments are concerned, fusion is still far more hype than substance, as it has been for decades. There
are penny stocks advertising supposed “breakthroughs” that periodically make the rounds—but none that we would recommend to anyone to buy at this time.
 
So far as growth in nuclear power, the most exciting thing going on now in my opinion is NuScale Power Corp’s (NYSE: SMR) development of small scale reactors. The company’s design is the first SMR to be certified by the US Department of Energy, with a final rule slated to enter the Federal Register on February 21. And there are incentives in the Inflation Reduction Act for investment as well. This stock too has seen its share of hype. And I don’t expect real earnings anytime soon. But it does look like we’re going to see some orders here in the US—earlier this month they signed a contract for front-end engineering and design in Romania.
 
The best play on currently operating nuclear power plants is Constellation Energy (NYSE: CEG), which spun off from Exelon Corp early last year. My view is they’re very well placed for rising cash flow and dividends the next
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several years at least. The stock, however, is somewhat expensive after roughly doubling from its post-spinoff price.
 
 
Q. Elliott, Roger: Mining companies have done well recently, and talk of China reopening seems positive for them. Can you share your thoughts on BHP Group (ASX: BHP, NYSE: BHP), Vale SA (Brazil: VALE3, NYSE: VALE) and Freeport McMoRan Inc (NYSE: FCX)? Thanks—Dennis H.
 
A. We’re very favorable long-term on big mining stocks. Of those three, Vale is the cheapest now because of concerns about Brazilian politics—since its operations are heavily concentrated there. We believe worries about the new government are overblown. But BHP and Freeport are more geographically diversified, which limits their overall political risks.
 
Near-term, we’re a little less bullish, since prices of these stocks will follow commodity prices—which are likely to drop from here in the event of a recession this year. Our view is China’s opening is bullish. But it will likely take some months for growth in demand
there to accelerate enough to offset weakness elsewhere.
 
We recently produced an extensive report on metals for our Capitalist Times service. If you’re interested, please contact Sherry at 1-877-302-0749 anytime 9-5 ET, Monday through Friday.
 
 
Q. Hi Roger. I see that green energy darling NextEra Energy (NYSE: NEE) has taken a hit apparently due to misses in revenue and earnings. Perhaps you can send out an analysis as to what went wrong after the dust settles like what you wrote regarding Kinder Morgan Inc (NYSE: KMI) in the last Energy and Income Advisor. As always I find your insights informative and helpful. Kind regards--Jim C.
 
A. Hi Jim. NextEra actually did not miss on anything in Q4 or the full year 2022. They actually extended their guidance for 6 to 8 percent earnings and 12 to 15 percent dividend growth by another year, through 2026. And they increased their 4-year renewable energy installation target by 15 percent over their projection from last year,
, indicating robust demand at both the regulated Florida utility and the nationally leading solar and onshore wind generation franchise.
 
Instead, as I highlighted in the update I sent out yesterday, the stock is under pressure for political reasons—mainly, the company is under investigation by the Federal Election Commission for alleged violation of state and federal campaign laws. The total amount of alleged contributions in question is less than $1.3 million. So the risk here is not from what fine the company may face but that its very strong relationship with Florida regulators may be threatened.
 
I think that’s unlikely, given NextEra’s strong storm response, low rates and the popularity of its solar deployment. But this is a pretty good indication of the high bar of expectation high valuation companies like NEE are facing in this environment.
1:59
I still rate the stock a buy at 80 or lower for long-term, conservative investors.
 
 
Q. Roger's picks are more profitable than a utility-based mutual fund. My 401k with Fidelity only allows me to invest in mutual funds. Do you know of any funds that come close to, or feature a good selection of Roger's recommendations?—Mark P.
 
A. Hi Mark and thanks for the compliment. The “funds-only” restriction of many 401Ks—often just the funds offered by the sponsor—is a pretty good illustration of how big Wall Street firms so heavily influence the rules of investing as laid down by the federal government. One way around these restrictions is to convert your 401K into a SEP IRA in which you can buy your own stocks—though that may not be possible given how the big firms run that side of the game as well.
If you’re stuck investing in Fidelity funds, you’re going to be buying pre-packaged baskets of stocks and possibly bonds—so it will be hard to duplicate anything we’re doing here. They do still have an energy fund (FSENX), which at last count was heavily weighted toward major oil stocks. And Fidelity Select Utilities (FSUTX) owns large utilities, with nine of its ten largest positions also Conrad’s Utility Investing portfolio stocks.
 
I still believe very strongly that investors who buy their own stocks are going to outperform the averages and ETFs the next several years. But these funds would be somewhat tracking our energy-related holdings, if they’re available to your 401-K that is.
 
 
Q. Hi Roger. In the latest CUI+ you mention two money market funds are closed. I recently found out that Schwab has a proprietary money market mutual fund for investor class SWVXX. It's no load and pays monthly around the 15th. It was 4.6% when I bought and recently 4.1%. To get cash I have to sell whatever amount and 
and wait until the next morning to get the cash. I read that it can have a $0.00 balance. Really appreciate your thoughtful advice.—Sandra W.
 
A. Thanks Sandra. We have received quite a few questions about alternatives to the Vanguard Federal Money Market Fund (VMFXX). Thanks for passing on this suggestion. VMFXX yields 4.1% at last count, SWVXX 4.3% and slightly better. But either is a good alternative in my view.
 
 
Q. Hi Roger. I won’t be able to attend the chat coming up on 1/31, but I have a question: TD Ameritrade (now Schwab) where I have my accounts will not allow a purchase of Vanguard money market funds. Do you have a Schwab MM fund similar to VMFXX that you like? And would you put all of your cash ($500K +) into just one MM fund? Thank you again for all you do!—Tom
 
A. Thanks for the question Tom. I would check out SWVXX as recommended by Sandra in the previous question. As for investing all your cash into one money market fund, I don’t think we’re at the point here where money market defaults
2:00
are a real concern—and we’re not likely to be for the foreseeable future. In any case, the US government made it clear it would defend the $1 NAV of money funds during the last financial crisis in 2008. And it seems likely it would in a future crisis, given how devastating not doing so would be.
 
jeff B
2:04
Roger, what is your take on UTG.  Its now paying 7.7%.  I am more interested in safe income that capital appreciation at my age.
AvatarRoger Conrad
2:04
Hi Jeff. I really prefer buying individual stocks. But I think if you're going to buy a utility stock fund, closed end funds Reaves Utility Income Fund (NYSE: UTG) and Blackrock Utilities Infrastructure & Power (NYSE: BUI) are your best bets. CEFs are essentially a black box--you don't know what's inside other than the snapshot offered in official documents, which by the time they're published are well out of date. And dividends are at the discretion of managers--they're only rarely covered fully by dividends and other income. But both of these have a solid track record, appear to own strong stocks and trade around net asset value--and dividends have historically been reliable.
jeff B
2:09
I have a position in TDS preferred's.  I am currently underwater.  I know you have a sell on the common.  Would you have the same opinion on the preferred's?
AvatarRoger Conrad
2:09
Hi Jeff. The preferred stocks are underwater primarily because of rising interest rates. Because they're essentially perpetuities without maturing dates, this type of preferred stock tends to act like a long term bond--so interest rate swings have a much larger impact than they would on a short term bond for example. The other issue is credit. TDS announces Q4 earnings and guidance in mid-February and will almost certainly show the same pressures on cash flow from elevated CAPEX, floating rate debt cost and very likely declining revenue. My view is that raises risk of a common dividend cut. I don't think there's meaningful default risk at this time, which means preferred stocks should still get paid. And if rising rates moderate, pressure on preferreds share price should moderate as well. But I do think there are better places to have your money.
Jeffrey H.
2:15
Dear Roger/Elliot, My question is perhaps a bit from left field but I think this is the venue to ask it in. What are your thoughts about the investment possibilities in emerging markets? I took a position in ILF (Latiin America/South America) at the beginning of the year and it's done rather well -- do you see further potential in that area of the world? I am also interested in knowing your thoughts about investing in emerging market debt through a suitable bond fund. Howard Marks has written some encouraging things about emerging market debt recently and his opinions are not to be sneezed at. Nor are your own. So I am curious about your thoughts. Many thanks.
AvatarRoger Conrad
2:15
Hi Jeffrey. We currently hold a couple of emerging market utilities in Conrad's Utility Investor--America Movil (NYSE: AMX) and CLP Holdings (OTC: CLPHY), which is a China play. Our view is a resurgent China will help both stocks. And its notable that the Hong Kong dollar is pegged to the USD, while the Mexican Peso was one of the few currencies to show strength against the USD in 2022. AMX has done particularly well so far this year, and offers a lower risk play on Brazil. We also hold AES Corp (NYSE: AES), which has a large investment in Brazil and other developing countries. Bottom line is at this point we prefer individual companies  with clear long-term advantages to big baskets of stocks or bonds. But we are increasingly positive on selected countries and will likely have more recommendations for you later this year.
Jack A
2:18
Hi Elliot:

Natural gas has fallen very low.... What are thoughts about purchasing UNG or BOIL as an investment and waiting for a pop? The price for both of these have been considerably higher in the past....

Thanks
AvatarElliott Gue
2:18
Thanks for the question. We put out a flash alert regarding natgas a couple of weeks ago and generally we have a constructive view on gas at current levels. Simply put, the main driver of the 70% plunge since last August is a warmer-than-average winter here in the US (and in Europe). However, there's always the possibility og a late season cold snap that changes the picture over the next few weeks. Furrther, in justa  couple of months, the market's attention will turn to summer heat and the potential for strong gas-generated electricity demand, particularly in the western US this summer. Finally, the inevitable result of low prices ($3/MMBtu or so) is a decline in US production growth that helps tighten the supply picture. The timing of this is, however, uncertain and buying UNG (or even more so BOIL) and waiting can be costly because of the way these ETFs roll their gas futures exposure. So, generally, we believe longer-term investors should focus on owning high quality gas producers (like CHK).
AvatarElliott Gue
2:18
In my options trading service, I have a trade on UNG that utilizes calendar call spreads -- in this way we can take advantage of the volatility in UNG to help set up a low-cost bullish position on gas. However, I am wary of simply buying UNG/BOIL as a long term, investment -- in my opinion, I prefer to trade these ETFs only when there is a near-term bullish catalyst for gas. Right now, there's no obvious catalyst -- it's more a question of the view that gas is too cheap for the long-haul and should recover at some point.
Ben F.
2:22
Good afternoon Elliott and Roger -

National Fuel (NFG). It appears cheap and has a record of paying dividends for 52 years and raising them for 51 years. Low payout ratio as well. 

Good time to buy more?
AvatarRoger Conrad
2:22
Hi Ben. National Fuel Gas has been a Conrad's Utility Investor recommendation for the past couple years. We were able to recommend taking partial profits on it last year when natural gas prices were peaking. Now it's looking a lot more interesting with natural gas prices dropping. NFG shares would likely drop further in a recession. The main reason I'd be comfortable holding is it's the last of the true integrated gas companies, combining very stable regulated utilities and pipelines with more cyclical gathering/processing and production. That ensures modest dividend growth. And as we're still in the early stages of this energy price cycle, we look for this stock to eventually take out the previous cycle's high of near $80 the next few years. NFG is a buy at 65 or less--though I never recommend really loading up on a single stock, no matter how attractive it looks.
Don C.
2:32
Roger/Elliott---I was a bit surprised by Chevron's announcing a $75 billion dollar share buyback over the next several years. Do you think that this was wise given politicians complaining about buybacks so much these days? Also, do you think that it is better to do buybacks rather than pay down long term debt? Many thanks for these chats and your measured advice over the years.

With gratitude
AvatarRoger Conrad
2:32
Hi Don. Thanks for joining us today. Addressing Chevron's debt first, it had a total of roughly $21.8 bil at the end of 2022. That compares to $17.9 bil of cash on its books and projected free cash flow after dividends (following the increase) of $20 bil for 2023. Stock buybacks of $75 bil the next few years--or nearly one fourth of market capitalization--will obviously consume a lot of cash. But they are at management's discretion and the company has indicated they'll be implemented over several years. Bottom line: Debt has been reduced sharply over the past year and is no longer really a factor for Chevron.

As for the politics, hot rhetoric aside, odds of a windfall profits tax in the US are not zero but are still extremely low with a pro-fossil fuels development House. And they're historically ineffective, so I doubt the Biden administration really wants them anyway. I think CVX is pricey here--but the buyback won't hurt it in my view.
Fred W.
2:33
Hi Roger and Elliot,,
A few weeks ago I had read where the Biden Admin was letting Venezuela send a tanker full of oil to the United States, and, that they may be be preparing to purchase more dirty crude from  the awful Venezuelan regime.
If true, what is your take on the probability of this happening and would the volume eventually have much of an impact on the price of crude oil here in the United States?

Also, would it have an impact on such pipeline stocks such as EPD, ET, KMI and or oil majors such as XOM, COP, ETC, ETC?

Thanks for the wonderful service you provide.
AvatarElliott Gue
2:33
The US hasn't imported any oil from Venezuela since 2019. It is true that the Administration has allowed Chevron to reactivate some of its assets there and import some of that oil into the US. There are some complex restrictions on that including that Chevron can't help Venezuela produce from new fields, the idea is generally to allow CVX to recoup some of the investments it has made in production capacity there over the years. At any rate, I don't think that imports from Venezuela will be significant in terms of volume or have a significant impact on the price of oil or refined products in the US. Let me put it into context: Venezuela's total oil output is less than 700,000 bbl/day and total US demand is more like 20 million bbl/day. As recently as late 2017, Venezuela produced over 2 million bbl/day but consistent mismanagement of resources and the lack of investment haver pretty much obliterated their production capacity. To make matters worse, the US is really one of the only countries that has the
AvatarElliott Gue
2:33
capacity to refine significant quantities of heavy Venezuelan crude. The only US company that might benefit a bit would be Chevron, but it's not really significant and the volumes would also be meaningless to the pipeline operators in my view.
Rick P.
2:40
Roger, any significant update on CEQP? 

It seems like it is basically flat for January and missed the rally that other stocks have experienced this month. 

Thank you
AvatarRoger Conrad
2:40
Hi Rick. Midstream stocks are typically last to the party in an energy upcycle--and despite big gains the past couple years that's proving the case this year. Eventually they do shine, as robust pricing increases output and throughput. Until then, the important thing will be the dividend, and management's ability to deliver an increase in April. Crestwood will announce Q4 earnings and update guidance on Feb 21. And I expect to see solid dividend coverage, despite management's warning earlier this month that Q4 results will be affected by weather and will push 2022 results "slightly below prior guidance." The earnings warning is probably the reason for underperformance. But keep in mind CEQP is still up for the year--and the solid dividend of nearly 10% is a pretty good headstart for returns this year.
buddy
2:44
Elliott,  As the energy market matures and spreads out, especially the services industry (off shore and deep water), you never have any new ideas or recommendations.  You stick with the same old safe names month after month that you recommended when the energy market started to turn up a year and half ago.  Why?  I am sure your subscribers would like some new opportunities that likely have more upside potentiall, me included.  Thanks for your reply.
AvatarElliott Gue
2:44
As the cycle matures, we will likely add to the list of names we like. And, as you know from the past few issues, we believe services are one of the top areas to focus on. However, we haven't seen a great reason to move out the risk curve to date as the bigger, safer names have generally offered superior returns. After all, consider that since the end of 2020, shares in SLB are up 170% and XOM are up 209% -- the Philadelphia oil services Index is up 118% since the end of 2020 and the S&P 500 Energy Index is up about 160%. Similarly, our favorite names a year ago in our January 2022 issue included SLB, XOM and VLO which are up 92.2%, 96.2% and 92.3% versus 69.3% for the S&P 500 Energy Index and 79.9% for the Philly Oil Services index.
Wayne H.
2:45
There is some discussion on the news media that the current development of solar and wind energy is reducing oil and gas development investment to the point that we may be at peak oil and gas demand. Is this realistic?
AvatarRoger Conrad
2:45
Hi Wayne. First, rapid development of wind and solar is likely to continue--with solar likely to benefit this year from the massive increase in Chinese polysilicon production capacity. But as we've pointed out, global demand for oil and gas is still rising--and is projected to do so for years to come, as the developing world increases energy intensity.

In any case, reduced investment in oil and gas--relative to previous cycles--is probably the single biggest reason why this price cycle is shaping up to be one of the most robust ever. Simply, systematic underinvestment as we've seen the past few years depresses supply relative to long-term demand--whether we're talking about pipelines or oil/gas wells. That means higher prices--and profits/share prices for energy stocks.
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