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10/29/24 Capitalist Times Live Chat
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nolan01@verizon.net
4:09
Any update on PBF its down a lot since I bought it in April
AvatarElliott Gue
4:09
PBF is a refiner, so it's suffering from the same exposure to weak refining margins as VLO, which we covered earlier. In out view there's more upside than downside risk in refining margins, particularly as Chinese stimulus starts to work its way through the economy, driving Asian demand. With PBF into support in the high $20s, low $30s, we think there's some trading upside in the name back over $40.
Guest
4:09
Hi Roger:  I am sure you will be inundated with questions today about NEP and its fall.  Hope this one is not duplicative of any prior ones you receive.   2 questions - 1. Wasn't management's announcement during guidance (when was that?) about a Q4 "strategic review" and a possible dividend cut TOTALLY NEW and not consistent with their prior positions about the stability of their dividend?  2.  If NEP's dividend is "well covered by cash flow from long-term contracted assets", why would they cut the dividend just because investors have "not rewarded" the company for its high dividend?  Really what I am asking - is cutting the dividend and upsetting investors/damaging the company's credibility just an opportunity to save money even though the company has "well covered cash flow"? Why would they do that?  Sorry if the question is so basic and the answer is obvious to all except me.  Appreciate your ongoing guidance Roger these many years!  Best, Barry
AvatarRoger Conrad
4:09
Hi Barry. NextEra Energy Partners is and has always been a funding vehicle for NextEra Energy. But now priced to yield nearly 19%, it absolutely can't issue stock. It will have an easier time issuing debt as the Fed pivots to lower interest rates. But borrow too much and the credit rating will drop and the cost of debt capital will also become prohibitive. Yes, NEP's cash flow from its long-term contracted projects could continue funding the current dividend and even increase it, as repowering wind facilities boosts cash flow. But at the end of the day, it can't raise the funds to take drop downs from NEE. And that's made NEP all but useless as a funding vehicle for roughly a year now.

Your question is one I don't think anyone can answer except NextEra Energy management. They say there will be a decision announced  in late January with the release of Q4 results. I think that could include an attempt to reboot NEP with a lower dividend, so cash flow could fund more growth. Or they may roll it up.
AvatarRoger Conrad
4:10
Either way, I think the worst has been priced in for NEP for over a year now. And I intend to stick with it to see what happens.
Ed
4:15
Could you offer thoughts on why Ovintiv is one of the few companies trading below your dream price listed? Also could you suggest the principal pros&cons for considering Africa Oil as an investment? Tx
AvatarElliott Gue
4:15
I answered a question on OVV just above. Africa Oil is not a name I know particularly well; I've followed it in the past but because it trades OTC in the US and its a $500 m market cap, it's a little below size of companies we normally follow/recommend in EIA. Generally, they have some interesting wells offshore Namibia (operated by French giant TTE). Their Nigerian assets are experiencing declining production, however, some they need some new wells to offset the natural decline from existing assets. The company has no debt, which is also a positive. All that said, it strikes me as a speculative name that will probably need a significant rally in oil prices to catalyze a significant rally.
Guest
4:15
What trend do you expect for utility stocks over the next 1-2 year horizon?
AvatarRoger Conrad
4:15
I think the best in class will be able to hold to long-term investment plans, and therefore expected earnings and dividend growth. I think the headwind of "higher for longer' borrowing costs will gradually become a tailwind, making it easier to stick to investment plans and eventually boosting dividend growth rates. And I think we'll see increased ownership of utilities in the S&P 500, as Big Tech inevitably declines.

I think we need to adhere to price discipline when it come to buying. And I think we need to be willing to take money off the table when stock prices outrun their business value. But I think the sector as a whole has just been through a pretty tough multi-year period and emerged in very good shape. And I think we're going to see some pretty solid returns the next 2-3 years at least and very likely beyond.
Guest
4:22
Hi Roger:  Tell us about Western Midstream Partners as a viable MLP to invest in.  I know it is listed on your EIA list of "MLP's and Midstream companies" with an "Aggressive" rating and a buy under $35. But it is never highlighted or discussed by you in EIA like ET, PAA, EPD and MPLX are analyzed.  Does that mean it is not a good company in which to invest if we wish to diversity outside of the 4 listed above?  Appreciate your help always!  Barry
AvatarRoger Conrad
4:22
I think Western Midstream has been a bit pricey lately but appears to be coming back to our highest recommended entry point of 35. I guess the main reason I don't like it as much as the major midstreams in the Model Portfolio is the fact its largest customer by far is Occidental Petroleum, which acquired Western's former parent and largest customer Anadarko several years ago. Unlike Andarko, Occidental has run itself for free cash flow--not a bad thing for shareholders but a restraint on growth for the midstream company serving it. Occidental has also been selling down its stake in Western to cut debt. The assets are solid and I think a takeover by a larger midstream company or even a producer is likely eventually. But I think investors should be cautious on price.
FrankL
4:25
Roger/Elliott - weakness in the price of oil seems not to bother BSM; at least thus far versus regular E&P's which are getting smoked. Any thoughts?
AvatarElliott Gue
4:25
BSM has significant exposure to natural gas (73% of latest quarterly production) which has helped in my view. While natural gas prices have been weak this year in general, the natgas E&Ps have held up very well-- EXE (formerly Chesapeake) is up 14% year-to-date and our other favorite on the gas side, EQT, is down about 2% including dividends. For reference, BSM is down 0.6% including dividends this year. So, pretty much in-line with higher quality natgas peers in my view.
Ted
4:27
Do you guys know estimated proportionate allocation of the adjusted cost base (ACB) between TC Energy common shares and South Bow common shares.? Thanks,
AvatarRoger Conrad
4:27
Hi Ted. It was basically one share of SOBO per 5 shares of TRP--or to put it another way, 0.2 shares of SOBO for every TRP held at the time fo the spinoff. Your cost basis for SOBO should be calculated on the price where you purchased TRP. The TRP cost basis should be reduced by the value of 0.2 shares of SOBO at the spinout price, which opened at $22.90 the first day it traded NYSE. Alternatively, you could use SOBO's price the day it debuted on the TSX, which was CAD28.
Tom
4:41
Hi gentlemen.   I remember in these pages some time ago a  suggestion that high inflation would possibly (likely?) revisit the economy after the Fed tamped it down initially, due to the effect of a long period of high rates suppressing investment and production.  How do your tea leaves read currently?  Many thanks!
AvatarElliott Gue
4:41
I think that's still a very real risk and it's something we're actually starting to see. From a 30,000 foot perspective, the price/inflation level in the economy is a function of Aggregate Demand and Aggregate Supply. The Fed influences the demand side of that equation because higher rates will tend to slow economic growth and, if maintained at a high enough level for long enough, the Fed can engineer a recession. When growth is low or the US economy is in recession, there's less demand (for commodities, goods and services) at any given price level. On balance that will mean lower prices (lower inflation). The problem of course is that when the economy exits recession -- when growth resumes as it tends to do -- then demand rebounds and that leads to a resurgence in inflation. That's what we saw throughout the 70's. Inflation came down, for example, in the vicious recession of 1973-74 only to rebound in a big way as the economy recovered in 1975-77. So, the economy cooled a bit following the Fed's 2022-23 rate
AvatarElliott Gue
4:41
hike campaign and inflation came in a bit as well. However, the economy still isn't showing the degree of weakness I'd expect ahead of an imminent recession and appears to have rebounded since summer. So, we've had some hot inflation numbers. While it's less talked-about, Fed policy can also impact the supply side of the economy. For example, rising rates can impact new housing unit creation which, of course, restrains supply and boosts inflation. Rising rates can also make it harder for companies to finance major energy projects, commodity production, factory building, etc. That too can  actually have the impact of boosting inflation. My view remains that we're probably in a world where average inflation through the cycle is going to be much higher than it was from the late 1990s through 2020-21. That probably means we'll see rates come in from the highs in 2023-24 but we're not going back to 0% (a good thing in my view as zero and negative rates cause economic distortions). The 1970s are often called a
Arthur
4:41
Thoughts on AGR (Avangrid)   Thank you.
AvatarRoger Conrad
4:41
Hi Arthur. Avangrid is moving towards being taken private by its 81.6% owner Iberdrola SA (Spain: IBE, OTC: IBDRY) for $35.75 per share in cash. The parties still expect a late Q4/early Q1 close, with shareholders approving, the FERC and anti-trust approval in hand and only approval from New York regulators needed--which seems assured. Today's closing price of $35.70 is pretty much there, though there is one more dividend of 44 cents per share declared for shareholders of record Dec 2.

I don't see much risk of deal failure at this point. But neither is there much upside for sticking around (1.4%).
AvatarElliott Gue
4:41
“Stagflation” decade, a term that implies high inflation and weak economic growth. That’s not the case – it’s a misnomer. Real economic growth in the 1970s –growth adjusted for inflation -- was actually in-line with the 1980s and 1990s. The 70s are really better described as a “volatile” or boom-bust economy – very strong growth at times and very high inflation as well as deep recessions in 1973-75 early 80s and nasty spikes in unemployment. Sorry for the rather esoteric answer, but that’s broadly what I see.
Don C.
4:48
Gents—these chats are very helpful to me. I have been trading gold shares since 1970. I know you like Newmont (NEM) but what about the streamers and royalty companies—WPM, FNV, RGLD and OR? They seem to be a safer bet these days in that volatile sector than actual miners.
AvatarElliott Gue
4:48
Thanks for the question. I like the streamers very much, partly because they have no direct exposure to (rising) mine development costs.  In our trading service, CT Trader, we closed a long position in WPM today for a gain of as much as 50% since recommendation early this year. That's also a name I've liked from a long-term investment perspective -- it's a name I still recommend in my longer-term service. It's worth noting WPM also has significant exposure to silver; I believe silver prices have major upside here and a lot of the pure play silver miners are not exactly well-run "quality" companies (to put it mildly!) I've also recommended FNV and OR in that service in the past though not presently, mainly just because the model portfolio already has exposure to multiple gold and silver-related recommendations.
Diane
4:48
Gentlemen,
Thank you for doing these chats – they are VERY helpful.
Roger, what do you suggest for Iron Mtn?  I’ve had fabulous capital gains, but as the price gets higher, the dividend gets lower.  Hold on to it?  Replace it?
AvatarRoger Conrad
4:48
Hi Diane. I think it's probably a pretty good candidate for taking some money off the table at this point. IRM used to be the laggard in the data center space and the one I could recommend on a value basis to REIT Sheet readers. But it's up 126% over the last 12 months and is starting to look as expensive as others in the group like Digital Realty (NYSE: DLR). I don't think current prices reflect the risk to this industry---mainly fierce competition and uncertain costs from upgrading to AI (especially energy). I think the AI boom is for real and data centers are critical to it. But at these prices, any disappointment could do a lot of damage. And the yield of 2.2% is less than half what a good money market  fund would pay with a fraction of the risk.
Guest
4:52
I heard a recommendation of Viper Energy today. Any thoughts?
AvatarRoger Conrad
4:52
The way to think of Viper Energy is a funding vehicle for its parent Diamondback Energy (NSDQ: FANG). The variable dividend depends on two things: Realized selling prices for oil and gas and FANG's plans to grow. I think both are pretty good bets at this time and for disclosure purposes I've owned Diamondback personally since that company acquired the former Energen. We do have recommended buy prices for both stocks and I strongly suggest you don't pay more than them. But I think there's a lot of upside here longer term.
Hans
4:53
Elliott,  With many of the OIL stocks (Hes,OXY,WDS) below portfolio rating prices, is it worthwhile adding some at todays prices  Thanks
AvatarElliott Gue
4:53
All of these names are below our buy recommendations and we believe represents a good long-term value for a patient investor. Our view is that the current commodity cycle isn't finished (not even close) and so we'll see fresh highs for high-quality E&Ps in the next 12-24 months.  In terms of the model portfolio, what we're looking for is some sort of a signal that sentiment is shifting on oil, such as a rally based on fundamentals rather than mercurial geopolitical news. Also watching the physical demand signals like crack spreads and backwardation. Once some of those signals line up, we're likely to recommend adding to some of these positions in the model portfolio.
RW
5:01
Whoops, the question is your thoughts on the drivers of GEV's rapid upswing.
AvatarRoger Conrad
5:01
Hi RW. GE Vernova has been a hot stock since getting spun out of GE this spring. That's despite being responsible for producing faulty blades that caused a cracking at Avangrid's Vineyard facility off the New England coast that caused expansion to be temporarily halted. The company apparently has a settlement of these issues in hand. But I think what continues to drive the stock is investors' desire to hold a US-based electric equipment stock at a time when the power industry is in an investing mode--in part to meet demand from data centers but also from ongoing electrification and reshoring of industry. GEV does it all in generation including nuclear and also transmission. At a 46X forward P/E it's not a cheap stock. I could see it going higher so long as the stock market does. But the higher it flies, the more tempted I'll be to take some money off the table and let the rest ride--this is also one I own personally having received shares from the GE spinoff.
Frank
5:05
Not to beat a dead horse on NEP but I always went by the old adage that the safest dividend is one that was just raised. Why would they raise the dividend by 6% now if they intend to chop it in 3 months? Makes no sense
AvatarRoger Conrad
5:05
Hi Frank. That's usually a pretty good rule. And as I've said, were NEP an independent company it could certainly afford to keep paying its current dividend, even increasing it as it repowers the wind facilities the next few years. But again NEP is a unit of NEE--they have control and a majority economic interest. And NEP was set up to help fund NEE's enormous opportunity set in solar, wind and energy storage--a task it absolutely can't do priced to yield 19%. This has been the situation for NEP for over a year now. They have a lot of funding needs. And I think it's either a big dividend cut or a roll up merger ahead. Either way, the stock is priced for it and I don't see any sense in selling before we find out what they're going to do in January.
Fred
5:09
I believe MPLX raised it's dividend by a whopping 12.5% today. Do you still have a $40 buy limit or have you raised it?
AvatarRoger Conrad
5:09
This is very good news for MPLX shareholders and is a bigger boost that the Wall Street analyst consensus had been expecting. I think it's an outward sign of inner strength at the company--as well as probably a sign primary owner Marathon Petroleum wanted a bigger return on investment. I want to see what the company reports on November 5 for Q3 results and what it's guidance is before raising our highest recommended entry point. But at this time, I would say some increase is likely.
Frank
5:12
Today Boeing announced a 6% mandatory convertible preferred. Is there any investment interest in this issue
AvatarRoger Conrad
5:12
Possibly. Boeing still has some issues to work out obviously. it can be hard to turn around a ship this big that's been moving in the wrong direction. And mandatory convertible means what you'll get depends on where the share price is at the maturity date. This is also part of a much larger offering to raise $20 bil plus. Investors want to bet on a recovery story but I'm not sure this is for conservative investors.
Alex M.
5:19
Hi Roger.  Thoughts on ARE after the recent earnings release?  Thanks.
AvatarRoger Conrad
5:19
I liked the numbers. And the guidance was on balance pretty solid--with management affirming the same mid-point for 2024 adjusted FFO per share it set a year ago. The analyst reaction is what's driven the stock lower initially. And that appears to be based on the thesis that the biotech industry is weakening and that there's oversupply with Alexandria REIT facing lease expirations next year. I think management is likely to issue cautious forecasts for 2025 on that basis. But the current price is back where the stock traded in 2019, when the dividend was more than 20% lower. I think the bad news is priced in even as ARE continues to build its long-term earnings power in campus research facilities that will drive long-term growth. And I intend to stick with it.
Allan
5:48
What is your opinion on EGY and RITM. Thank you..
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