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10/29/24 Capitalist Times Live Chat

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Elliott Gue

5:48

EGY is a little on the speculative side for us in EIA. High risk opportunities in Africa. Management indicated on their last call that they're going to be stepping up CAPEX through the second half of this year ahead of bringing some organic growth projects onstream in 2025. The market is generally focused intently on free cash flow right now rather than longer-term growth opportunities. In my view, this is the type of stock that might work as a speculative play when commodity prices are rallying. Unfortunately that's not the current environment.

Alex M.

5:51

Hi Roger. ARTNA seems to be approaching lows. Any ideas on what's behind the move? Is this a good buying opportunity? Thanks.

Roger Conrad

5:51

Hi Alex. Artesian Water has basically weakened along with other water utilities this year from what were extremely high valuations, ARTNA still trades at a premium of 19.2X forward earnings but is no longer at an extreme level. As for operating results, I expect Q3 numbers and guidance to be updated in early November. But what we're likely to see is basically what we did in Q2, which is revenue and earnings driven by predictable system investment and rate increases, along with customer growth. The only real uncertainty was resolved earlier this year when Delaware regulators approved an amicable multi-year rate hike. My view is Artesian is eventually a takeover target--either for a larger water utility or private capital at the right price, as the market capi is less than $350 mil. And I continue to rate the stock a buy up to 45 for patient investors.

Guest

5:55

Again, appreciate this opportunity to query you both. NNN is REIT on Roger's ReitSheet with 33 yrs of consecutive div payment and growth, even if low-digit increases. Any thoughts on this retail oriented REIT. Thank you.

Roger Conrad

5:55

It's on my First Rate REiTs list, which is basically my top picks in the REIT Sheet coverage universe. It offers a combination of a 5% yield growing at a low to mid-single digit percentage rate--and backed by a strong balance sheet, wide diversification by tenant. sector and geographically, and long-term leases. I'm not immediately impressed by companies just because they've raised dividends over a number of years. But in this case, the boosts have been meaningful and driven by business growth. This is one I continue to like.

BKNC

5:58

Thanks, I agree, best just to wait on NEP and CVS since they have already taken the hit. Not much downside now. I meant to say "I know we were waiting for Nov 6 for CVS but I now wonder if they will break the company up". I think you understood the typo mistake.

Roger Conrad

5:58

Yes. From what I understand, the new CEO at CVS intends to focus on integrating the pharmacy/store, health care and insurance operations of the company, rather than breaking them up. But the November 6 guidance call will be the first under the new management, so I think we have to listen to what they have to say. In any case, a cheap stock at 8.5X forward earnings.

Hans

6:04

Roger, Any advice on NPIFF Thanks

Roger Conrad

6:04

Hi Hans. They plan to release Q3 results after the close Nov 13 with a guidance update Nov 14. And I would expect them to largely affirm guidance, including free cash flow projections. A possible wildcard is the "incident" reported at the company offshore wind facility under construction in Taiwan--basically a CO2 leak that affected 17 onsite workers. That's serious but based on what we know at this time, construction is continuing and there's no change in the projected in service date of 2027. Another wildcard is wind conditions on the North Sea. But again, I expect the monthly dividend of 10 cents Canadian per share to be covered by free cash flow once again. And there's no change in my advice in Conrad's Utility Investor, which is the stock is buy for those who don't own it at a price of USD10 or lower.

Phil

6:10

Hi Roger, I’ve been seeing quite a bit of talk lately about makers of small nuclear reactors and their potential for growth supplying the AI/data centre market. Do you have any recommendations in this area?

Roger Conrad

6:10

Hi Phil. I think if you want to play a potential boom in SMRs you should generally avoid the earnings-less over-hyped so-called "pure plays," one example being NuScale Power Corp. Yes, there's interest in SMRs here and around the world. But there's also no design currently where all-in costs can be sufficiently forecast. So every company contemplating adding SMRs--from utilities to big Tech--is in the exploratory phase only. And prices of these stocks are extremely volatile--meaning gains we've seen the last few months could easily be erased. There's just no substance yet. And by the time there is, it's fairly certain many of the stocks now getting interest will no longer exist.

As an alternative, I suggest checking out Brookfield Renewable--either the BEP partnership shares or the BEPC C-Corp shares. Both are cheap and pay generous yields. The company has real earnings backed by long-term contracts. And it's getting very little credit for owning 50% of Westinghouse in partnership with Cameco.

Willy

6:14

Roger, the refiners are currently out of favor. Any thoughts on VLO as a value play? I know it’s not for the faint of heart, but at these prices it seems to be discounting lots of bad news.

Roger Conrad

6:14

Hi Willy. We commented on Valero's Q3 earnings and guidance--and the stock market's seemingly negative reaction to them--in the current issue of Energy and Income Advisor posted yesterday.

The bottom line is investors are pricing the stock based on a tepid forecast for refining margins in late 2024 and early 2025. But this company is still generating free cash flow to fully fund dividends, stock buybacks and debt reduction. And the CEO issued a forecast for severely tightened refining capacity by mid-2025, which would drive a big boost in margins. We think the stock is cheap and a good buy for the patient.

Jim

6:21

Hi Roger, what do you think is the reason for the PAGP downdraft lately? I added some shares at $17.50 today but would like to know if this is typical volatility or some sector/company specific news.

Roger Conrad

6:21

Hi Jim. Plains GP actually finished today about where it started, though shares have weakened over the past week. The selling pressure is actually fairly typical of midstream MLPs, in contrast to the general strength in midstream C-Corps. We think that means relative value in the MLPs and that's where we're advising fresh money to focus now.

As for Plains the company, Q3 earnings will be released November 8, at which time the company will update guidance. And all signs point to maintaining 2024 guidance, which was raised in August following the release of Q2 numbers. Both PAA and PAGP trade at barely 20% of their last cycle highs. We think they'll continue moving in that direction--if the company's not taken over first. Stick with it.

Lee

6:23

Mr. Conrad, on which of the publications would I find the reco. price for Fang/Viper Thanks

Roger Conrad

6:23

Hi Lee. We cover Viper in the "MLPs and Midstream" coverage universe on the Energy and Income Advisor website. Diamondback is tracked with "E&P's and Service." You can find both under the "Portfolios" tab, along with the Model Portfolio, Dream Buys and other tables that appear in issue text.

Arthur

6:26

What is your current thinking on AQN?

Roger Conrad

6:26

I think its recovery has a long way to go, starting with closing the sales of the 42% stake in Atlantica Sustainable and the remaining renewable energy assets anticipated by end-year--which will enable the company to dramatically reduce debt. Then comes winning rate increases to push ahead with utility system investment, which are likely to stretch out over next year. It's going to take time. But the important thing to remember is utilities that fall on hard times can always find the way back to health. That's my view on Algonquin and I'm sticking with it.

Bonnie Beth

6:27

Hi Roger, Thank you for hosting this chat with Elliot Gue. I always appreciate your insights.

Roger Conrad

6:27

Hi Bonnie Beth. Thank you for joining us today!

Bonnie Beth

6:33

Hi Roger, This is my third try! Sorry for the previous unfinished sends. On many days I see NASDAQ stocks/funds move up in tandem but many of the utilities we follow all move down the same day. Specifically, I monitor Dominion, Ameren and Entergy. Is it mainly exposure to interest rates or is something else making them move the opposite way? As always, we appreciate your investment knowledge and we follow your CUI and REIT portfolios closely. Thank you! Bonnie Beth

Roger Conrad

6:33

I think it's basically a lot of money sloshing back into the stocks that had been the leaders up until April--mainly Big Tech. That's basically been the trend since Sept 18, when the Fed actually cut rates after months of speculation they would. I think it's in large part basic buy on rumor sell on news, as well as growing hopes the economy will avoid a hard landing this year. The problem is, the leaders are trading at both extreme valuations highly vulnerable to disappointment and are historically over weighted with just 6 stocks comprising nearly one-third of the S&P 500. That was the situation before April. it balanced somewhat until the Fed cut and now it's gone back to where it was.

This won't last forever. And I still expect dividend stocks to outperform--D, AEE and ETR included. What keeps me from going all in is the growing risk Big Tech's run ends badly and takes down the whole market. I think we just have to be patient and see what comes out.

Dan N

6:37

Hi Roger - what are your thoughts on the RIO buyout of ALTM? Timely?

Roger Conrad

6:37

Hi Dan. i think in the natural resources/mining business, scale is everything. And I think we're going to see a lot more M&A the next couple years, as commodity prices are locked in a range and companies deal with costs, rising regulation and resource nationalism in many areas. I think this deal makes sense, as does Rio's deal with Saga Metals to develop lithium. My view is the best buy in the space is still BHP Billiton, which is tightly focused on what should be the metals with greatest demand. But like the super oil majors, the super resource companies like Rio and BHP are more of less one decision stocks. And they're going to be worth a lot more in coming years.

Arthur

6:45

Thoughts on CCI. I didn't bail as I should have and am currently down 9%. Hold or punt?

Roger Conrad

6:45

Crown Castle reported Q3 results earlier this month and there were no real surprises in my view--as the loss of revenue from the former Sprint continued to dig into site rental revenue and adjusted FFO per share pretty much in line with previous guidance. Management basically affirmed all of its previous guidance ranges on financial metrics, including a $125 to $150 mil writedown in Q4 to reflect lost business.

The key to hitting bottom next year will be reaching the end of contract cancellations and staying on track with new business projections, particularly for small cells. There's nothing in Q3 results or guidance to suggest the company is not on track to doing that. But I would expect the company to keep freezing its dividend until then and for the stock to be rangebound. I don't see a lot of downside barring some worse revelation and the assets are valuable. But rate it hold at this time.

FrankL

6:47

Roger/Elliott - Given your past successes picking under-valued midstream players, is there one you might focus on especially with oil flirting with the $65-70 are and interest rates possibly headed higher? As always, many thanks for your hard work helping investors!

Roger Conrad

6:47

I think Energy Transfer LP and Plains GP Holdings are two to take a look at now--high and growing yields and growing businesses. Also, as we've pointed out here and in the EIA issue, MLPs are now heavily discounted to C-Corp pipeline companies--despite very similar prospects for growth.

Dan N

6:49

Hi Roger - here's an attempt at a couple non-redundant questions re: NEP's share price collapse and possible dividend cut. Is there any useful comparison here to what ET did a couple years ago when it slashed its dividend in the face of market pressure, paid off some debt, then aggressively restored its dividend once its leverage metrics achieved targets?

Roger Conrad

6:49

i think it's somewhat apples and oranges from the standpoint Energy Transfer LP was an independent company, while NextEra Energy Partners is basically a subsidiary of NextEra Energy. But yes, cutting the dividend at ET enabled the company to accelerate debt reduction, which the stock market liked eventually. And cutting the dividend at NEP will no doubt do the same--provided of course NEE does not take it wholly private.

Dan N

6:53

Also re: NEP, I like to look for opportunities where I can see the market is being short-sighted and my 10 to 15-year investing horizon can reliably predict much better things. Assuming that NEP does not get rolled up (I know it's possible), is there any real reason to doubt the growth model once drop downs resume? Management targeted 15% growth before interest rates rose, and NEE hasn't slowed the pace of making more renewable assets. With a 50 or 60% dividend cut, is there anything standing in the way of a return to 15% dividend growth? With the advantages of a much lower payout ratio and more retained cash flow to fund growth and control leverage? A big dividend cut is disappointing, but a 15% growth rate doesn't take that many years to recover and surpass previous dividend levels.

Roger Conrad

6:53

I think that's quite possible if NEE decides to restore NEP's ability to take drop downs rather than rolling it up. Understand it will likely take some time to get investors excited--many will avoid companies that cut dividends on principle. But there is huge demand for renewable energy assets, and NEE has a massive opportunity set it must either fund on economic terms or else forgo. We'll know what they decide in January.

Dan N

6:59

Hi Roger - I read projections that contract prices for renewable PPAs (already elevated, perhaps triple the solar and wind PPA rates of 2020) are likely to keep rising through the end of the decade. But stocks for many major renewables owner/operator/developers are still stuck in proverbial duldrums. Am I missing something? Higher price PPAs should raise the return for all new developments, and existing assets should also be worth more as PPA contracts expire and can be renegotiated. But those rising PPA projections look to me like they contradict the (until recently) steady downward trends in the costs of renewable development. Your take?

Roger Conrad

6:59

I'm always suspicious of forecasts for prices that are too far in the future, especially when they're for a commodity like electricity. But what is sure is demand is extremely robust, including in the US. Tax credits have helped. But the real advantage of solar plus storage is how fast it can be sited, permitted, funded and built--compared to any other generation source. And that means project costs can be set in stone as much as possible at a time when the courts have power to stop any energy project, inflation is pushing up labor costs and interest rates are still high.

Yes, I think that renewable energy stocks--or really any company associated in investors' minds with wind and solar--is taking a hit from politics investing strategies,. But these factors will be ephemeral. And as you point out, PPAs are rising now as are earnings for these companies as they sign long-term contracts--that's happening now, not in some speculative future. And it will eventually be reflected in higher stock prices for the best

Guest

7:06

Hi Roger, hope Elliott and you had a great experience at The Money Show. I am interested in your new investment service Dividend Premium and Dividend Premium REITS. Are both these services under one subscription?

Roger Conrad

7:06

We did thank you! And thank you for your interest in Dividends Premium. We are offering both services as a package through Substack, along with a new feature "Dividends Roundtable." You can find out more by clicking on the link on my latest free Substack post "Dividends with Roger Conrad." Note that we also sell Dividends Premium as CUI Plus/CT Income and Dividends Premium REITs as The REIT Sheet.

Robert P

7:11

Roger, sent you a question on Dividends Premium/Reits. Currently a subscriber to CUI and Reitsheet. The other question I missed, what is the major difference from the two currently subscribed to? Thanks, especially for the integrity, clarity and support Elliott and you have done for wealth building in yesterday's and today's challenging markets. Rp

Roger Conrad

7:11

Hi Robert. The main difference is the Dividends Premium subscription includes a new feature "Dividends Roundtable" that we're launching next week. Substack is a new medium for us. And we're trying to do a few things different there. If you're interested in that piece, please let us know.

Thanks you for putting your trust in us.

Robert P

7:18

Elliott/Roger, your thoughts on today's earnings report from EPD Q3 earnings and what in your opinion will it take to move the stock price as it is a best in class company?

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