JotCast | 10/29/25 Capitalist Times Live Chat

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10/29/25 Capitalist Times Live Chat

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Bonnie Beth

4:08

As I look to rebalance my portfolio, I have some questions regarding your short term to mid term outlook for the following: BXP, CUBE, MAA, UDR, and EPR.

Roger Conrad

4:08

Hi Bonnie Beth. I think the REIT sector in general is facing some considerable headwinds that are going to affect their results the rest of the 2025--and very likely in to 2026. One is simply higher for longer borrowing costs that have depressed development and have now convinced some management teams--including BXP's--to cut dividends in order to hold in more cash and fund a higher portion of development without debt. Another is the threat of slower economic growth on tenants' health and expansion plans. Some REITs like Prologis have reported stepped up activity. But I think we'll see pressure on rents and occupancy in other sectors--including apartments (MAA, UDR) as well as self storage (CUBE)--showing up in Q3 results coming out the next couple weeks.

I think the headwinds are pretty well reflected in REIT prices right now. And I don't think every company is going to cut dividends. Also, the stronger players (which you own) have a history of capitalizing in weak environments like this one.

Roger Conrad

4:11

I think if you're expecting breakout returns in REITs the next few months, you may have to dial back your expectations. The long-term is bright for all of these companies in my view. I think borrowing costs will eventually come down or at least normalize relative to occupancy and rents. And higher rates have depressed new supply across sectors that will come on stream the next few years--possibly to the end of the decade in some sectors. That means higher earnings. But it will also take patience to get there.

Susan P

4:30

Hi Guys, I read Elliott's earlier reference to a potential 6 to 12 mos framework for oil to be more likely over $70/bbl than under $50. And, EIA's last issue was partially entitled "the world is sleepwalking into a new energy crisis." I understand your supply/demand dynamic reasoning; yet, when I heard Chevron's CEO last week say the low in oil hasn't yet taken place and doesn't see that low until next year (2026), I am wondering if you agree with his perspective? FYI, he seemed to cite OPEC supply as the key reason for that time frame. Thanks much

Elliott Gue

4:30

OPEC supply is the lynchpin of the bear case for oil. Basically, OPEC is boosting production right now and the idea is that will overwhelm demand into Q1 and Q2 of 2026, producing a glut of oil and, accordingly, rising global oil inventories. Some would say that inventories are already rising, it's just not visible because China has been building its Strategic Petroleum Reserve (SPR) this year. And since China, unlike the US, doesn't report on the size of its SPR, we have to rely on satellite data to estimate how much oil they've been buying and how large their reserves are. I agree that Q1 Q2 2026 is the danger zone for oil inventories because seasonally that's a weaker time for demand. I just question how much of that is already priced in to the market with speculators already so bearish oil including a record Brent short position. And, even if oil does see a spike down to the low $50's bbl or so, I'm not sure that would have much of an impact on energy stocks given that the consensus on Wall Street already

Elliott Gue

4:30

forecasts lower oil prices in Q1 Q2. Basically, short-term -- let's call it now through Q1 or early Q2 2026 -- I'd expect oil prices to be scraping along near current levels. Downside risk is limited by extreme bearish positioning in futures and upside is limited by the likelihood we'll see some build in global inventories. I'm more bullish the stocks than oil itself because I think they're generally pricing in the worst for crude. Intermediate term -- say Q2+ of next year I see upside for oil because demand remains robust, production from the US will likely roll over hard the longer oil prices remain where they are and I expect OPEC to take action as needed to forestall a serious rise in commercial inventories.

Alex M.

4:38

Hi Roger. Doing the math, it seems like WTRG shareholders will be getting a 26% dividend cut if the merger is approved. I am really surprised that a company with such a long track record of rewarding shareholders with a growing dividend would pursue a merger that results in a dividend cut. What gives? Thanks.

Roger Conrad

4:38

Hi Alex. Under the terms of the deal, WTRG shareholders would receive 0.305 shares of AWK per share. Multiplied by the 82.8 cent current AWK dividend, that equates to a dividend of 25.254 cents per old WTRG share when the deal closes. That compares to 34.3 cents paid by WTRG following the July increase (5.2%).
This is technically a cut of around 26%. But there are a couple of caveats. First, the initial post-deal dividend rate hasn't been determined. The companies will continue to pay at the same rate until the close expected in Q1 2027--that time frame includes one and probably two dividend increases for AWK, which has been averaging 8% annual increases the past few years. Assuming that, the post-close dividend will be around 30 cents per old WTRG share. And two years after that at the 8% growth rate, the dividend will be higher than the current rate--that will happen after one year if the new company raises the payout at the top end its target range.

Roger Conrad

4:39

Continuing on with WTRG/AWK--this is obviously independent of any special dividend that might be declared for WTRG to make shareholders "whole" in the first year after the deal. And it's independent of whatever premium is received--it was 10% when the deal was announced.

4:43

I would also argue that dividend amount has not been a major driver of water utility returns for some time, at least relative to other utilities and dividend paying companies. More than 80% of WTRG's year to date total return is capital gains. This deal is fundamentally about two major utes coming together to form a more powerful company that will grow faster by doing accelerated M&A in a still dispersed but consolidating sector. I think the 7-9% annual earnings and dividend growth guidance will prove conservative. And I think holding these stocks is a great way to build wealth.

Sohel

4:43

Hello Elliot, I keep hearing about "melt up" in the markets before a decline (and perhaps crash according to some). What are your thoughts on this?

Elliott Gue

4:43

The melt up argument is (mainly) based on the view that the economy remains on decent footing and rates are coming down. Also, the Fed announced an end to QT today starting December 1st. Easy money + decent growth and corporate earnings into what's seasonally the strongest time of year for stocks is usually a recipe for market upside. Of course, there are worries and uncertainties -- there always are -- but from a tactical perspective I remain bullish (though I don't really like the term "melt-up"). As for a coming "crash" or major market decline I don't think there's any way to forecast that reliably. Stocks are (very) expensive no doubt. However, they were also expensive in 1997, 1998 and 1999 but the market continued to rally into 2000. There's no correlation between valuations and year-ahead market returns. Is AI a bubble? Maybe, but the market doesn't care - until we start to see the AI plays sell off in response to strong earnings or bullish analyst commentary like we saw out of the late 1990s

Elliott Gue

4:43

leaders in early 2000, then the question of whether AI is a bubble, or an appropriate valuation for a stock like NVDA, is an exercise in futility in my view. Generally, major market declines occur in the context of economic downturns (recessions) and I see no evidence of that yet. 5 to 10% corrections occur an average of almost twice per year but bear markets and "crashes" are rare indeed.

Jon B

4:50

Plains has had a significant correction recently. Do you think the price movement fairly reflects the impact of falling oil prices on Plains' business? I believe you have said in the past that Plains has a fair amount of exposure to prices to the extent those prices impact drilling in the Permian.

Roger Conrad

4:50

Hi Jon. I think the price drop at PAA and PAGP is pretty much in line with what's happened at other midstream energy company stocks since spring. The catalyst is soft commodity prices, especially oil. But I think the reaction is well overdone--as the midstream energy sector is in a far stronger position in 2025 than it was in 2015. Plains, for example, has a far better asset and customer concentration, much lower debt and a conservative development plan that it's been entirely self-funding consistently the past few years.
The company has historically been affected by changes in crude oil volumes on its system. And it's possible that will show up in Q3 results due out November 5. But the big surprise is likely to be management affirms guidance and once again posts strong dividend coverage. I expect an update on the ongoing sale of Canadian NGL assets, proceeds going to acquire more high quality US assets.

Sohel

4:51

Hello Elliot, Do you still think VLO is a better stock compared to other refiners and could you explain why? Thanks

Elliott Gue

4:51

Sure. We covered it at more length in the September issue of EIA. In short, most of VLO's refineries are on the US Gulf Coast which gives them access to two things: 1. A wide variety of feedstocks, including waterborne crude oils or domestically produced oils from regions like the Permian Basin. 2. More export markets. VLO can export gasoline/diesel to Europe, Central and South America, even Asia if prices are advantageous whereas a refiner with landlocked facilities doesn't have as much flexibility. Further, VLO's refineries are "complex," which basically means that they can process a wide slate of crude oil types (heavy, heavy sour, etc.) When OPEC is increasing production (read Saudi Arabia) usually the price discounts on heavy crude get larger because Saudi pulls more oil from fields like Safaniya that produce more heavy crude. VLO can take advantage of that by importing cheaper heavy crude. We also like MPC but that name gets a lot of its earnings from pipelines and we already recommend MPLX

Elliott Gue

4:51

which is basically MPC's midstream business. So, as a pure play refiner, VLO is a better choice.

Victor

4:54

Roger: Do you have any updates on XFIR?

Roger Conrad

4:54

Hi Victor. XPLR Infrastructure, formerly NextEra Energy Partners, will release its Q3 results and update guidance on November 4. And at this point, there's no reason to expect anything but a solid progress report on the recovery plan. The Meade Pipeline sale agreement should settle any near-term debt maturity concerns. And while wind conditions across parent and 51% owner NextEra Energy's portfolio were weaker than last year, that should be in part offset by the favorable impact of uprates at facilities. This one is going to take a lot of patience. But the recovery appears to be moving in the right direction. I may recommend this stock for a tax loss to offset some of the gains we've had this year. But my advice for now is to stick with it.

Fred Lind

4:58

Another of my long time holdings is Teekay. I think I’ve seen you prefer tanker classes other than what is in Teekay’s fleet. What is your opinion on TNK for the foreseeable future?

Elliott Gue

4:58

Generally, we think all of the tanker stocks are setting up well right now. The oversupply issue -- too many newbuilds -- that plagued the industry is no longer as much of headwind, because the older ships were retired the newbuild orderbooks have shrunk. Sanctions have also essentially removed some older ships from the fleet. Rising OPEC production is also a huge tailwind as it means more volumes of waterborne oil. Names like DHT/FRO have more immediate leverage to VLCC rates but Suezmax also benefits (TK/TNK). I've also recently been looking at the refined product tanker stocks like STNG and those too are benefiting as Europe (and others) shut down their refineries meaning that oil has to be imported from further afield (Middle East + US in Europe's case) to offset the loss of domestic capacity. So no doubt the outlook for the entire tanker complex has improved.

Frank

5:00

Today MPLX just raised their distribution by 12.50%, and they've kept raising it that pace over the past several years. When asked on a conference call what they expected to do with their excess free cashflow, they replied return cash to shareholders in the form of distributions over share buybacks or debt reduction. As a retiree that's music to my ears. ET on the other hand raise by 3% and it looks like the future holds more of the same. Why on earth is ET touted by so many analysts over a solid MPLX?

Roger Conrad

5:00

Hi Frank. That's actually a little bigger dividend increase than I was expecting for MPLX. It clearly reflects what Marathon Petroleum wants--more cash from the most profitable piece of its business. No doubt management is happy about its decision not to buy in the shares of MPLX held by the public in the previous decade, as so many feared. I still would not pay more than $50--our long standing highest recommended entry point. But I think we should a solid result for Q4 on November 4.

I think you should view Energy Transfer as a completely different situation. For one thing, it's a wholly independent company so there's no chance a parent will ever take it private--at least without paying a huge premium. It's also larger and more diversified. And 3-5% dividend growth off a yield of almost 8% isn't too shabby either.

Fred Lind

5:06

I have been holding Tenaris since the previous up cycle. It may have been one of Elliott’s picks from that period. At this stage in the current energy cycle, do you see TS as worth holding for the eventual upturn in development and services?

Elliott Gue

5:06

They're a leader in oil count oil country tubular goods (OCTG), meaning basically steel pipes used in the energy industry. Historically they were headquartered in Argentina though I believe they're officially headquartered in Luxembourg and they moved significant manufacturing capacity to the US to avoid tariffs. Regardless I suspect the stock got a boost from the elections there last week. At any rate, TS is a good long-term holding that can benefit from an increase in oil drilling and production activity. It's not one of our top picks right now as the outlook for additional drilling and CAPEX is subdued near-term.

Alex M.

5:08

Gentlemen, why do you think OKE is underperforming its peers right now (down 32% YTD)? Thanks.

Roger Conrad

5:08

I think ONEOK has underperformed for two reasons. First, it was very expensive starting the year after a multi-year run up. And with midstream stocks in general selling off, it was among the more vulnerable. Second, there's been concern about its exposure to NGL (natural gas liquids) price spreads.
I didn't see a whole lot to be concerned about in Q3 results released yesterday. The company is still seeing strong volume increases, the result of successful asset expansion including acquisitions the past few years. The company held down costs. And it affirmed guidance for EBITDA and adjusted net income for 2025. The NGLs segment saw a 19.9% boost in EBITDA--up 7% overall from Q2.
ONEOK looks solid and we consider it a buy at 80 or less.

Denisimo

5:10

A question regarding the expected interest rate cuts this year and next. If we own preferreds say at par, does that mean that we should expect them to go up in value?

Elliott Gue

5:10

The simple answer is that fixed rate preferreds would generally rise in value when prevailing rates fall. That said, preferreds are generally going to be more sensitive to longer-term rates than to the short-term rates the Fed controls (Fed Funds, Secured Overnight Financing Rate). Also note that preferreds carry some credit risk, so in the event of a recession or major economic slowdown, credit concerns tend to dominate the path of rates.

JT

5:12

Hi Roger, I own PAGP in a 401K so I don’t file K-1. Would it be better then to sell PAGP and buy PAA instead based on your comment earlier in the chat given the discount in shares of PAA?

Roger Conrad

5:12

Hi JT. As I said, PAA is cheaper than PAGP right now--and it's essentially the same asset. Having MLPs in an IRA is only an issue if the combined UBTI (unrelated business taxable income) is over $1,000 from all your MLPs. In practice, it's hard to get to that level. And so long as you don't, there's no additional filing, K-1 or otherwise. I obviously don't know what you have in your IRA. But whatever the case, the benefit from selling PAGP at $17.68 and buying PAA at $16.90 would seem pretty limited, even before the brokerage commission. Bottom line--we mean the PAA over PAGP right now to apply to new investment in Plains.

Sal

5:12

Afternoon Gentlemen Always look forward to are chats . I purchased SLV in 2012 at your recommendation .It was $25 back than . Not sure if i should take some off the top of this ETF as you would in your previous comments in this chat. Thanks for the insight .

Elliott Gue

5:12

We've been in and out of silver over the years, several times since 2012. Regardless of your entry point though, we believe it makes sense to take some profits with silver testing 45+ year highs this month. Longer term I continue to see upside for both gold and silver but it's never a straight line higher and I suspect we'll see some sort of correction/consolidation before the eventual break to significant new highs.

Sohel

5:23

Hello Elliot, SLB has not performed well. What are the prospects? Seems like it is a perennial next year story. Your thoughts appreciated.

Elliott Gue

5:23

Since the start of the current energy cycle in the summer of 2020, both SLB and HAL are up roughly 130% while BKR has been the standout of the Big 3 up 263%. The overall S&P 500 Energy index is up about 185%. Lately, the oil services names have generally been poor performers except for BKR which remains near all-time highs. Our favorite big oil services names have been, and remain, SLB and BKR. We favor SLB to HAL because it has more leverage to international markets/deepwater. The US market usually turns first, which is why HAL can turn before SLB in some cycles, but ultimately we see a new deepwater cycle benefiting SLB more than HAL. BKR has tailwinds from LNG -- especially following the recent buy of GTLS -- that have helped the stock outperform its peers this cycle. Also, their cryogenic expertise gives them some leverage to other markets, particularly data center cooling, which is a nice tailwind. BKR has more near-term upside catalysts though SLB remains a solid play on the longer-term upcycle in

Elliott Gue

5:23

energy and we view it as an outstanding value at the current price.

Alex M.

5:25

Consumer packaged goods have really been getting crushed lately (KHC, GIS, HRL, CAG, etc.). Are you seeing any value in the space yet at these levels? Thanks.

Roger Conrad

5:25

I had a position in CUI Plus/CT Income--also Dividends Premium on Substack--in Kraft Heinz. I exited it following the pop in the stock from the announced corporate breakup--in part because I believe the combined dividend from the two resulting halves would need to be cut. Now that we've seen Q3 results, I'm more convinced of that than ever, as sales and margins both declined. The reason has nothing to do with Kraft--which I think has been well managed and remains so. It's just the headwinds they face--some cyclical like high borrowing costs and squeezed margins from inflation, and some possibly secular such as a shift away from processed food.
I think this is a sector likely to feel more pain. CAG, for example, hasn't raised its dividend in more than two years. I won't say never--and GIS has been on our watch list for a while.

Alex M.

5:29

Hi Roger. If AQN sells their hydro unit after the strategic review, do you think they'll be able to sustain the dividend at the current level? Thanks.

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