JotCast | 11/17/20 Conrad's Utility Investor Live Chat

Return to

11/17/20 Conrad's Utility Investor Live Chat

powered by

Prev Page View Full Chat Next Page

Guest

4:46

I am looking to add some safe 5% yield. Main thing I am looking for is safe yield and gradual appreciation. Does TU, SJI, CDAUF fit the bill? Many thanks, Richard

Roger Conrad

4:46

I think all three would if purchased under our recommended buy prices. Remember that Telus and Canadian Utilities are priced in and pay dividends in Canadian dollars, so they do have the element of currency volatility. I think that will be a huge positive the next few years, though it has not been for most of recent history.

cstuttle@comcast.net

4:52

Any thoughts about Plug?

Roger Conrad

4:52

Plug Power has been around a long time. But up until this year, the stock has been mostly associated with disappointment. It's still about 1/30th the price on a split adjusted basis it held for a while following its debut in late 1999. And it's still not generating a profit, which should give pause to anyone thinking about chasing it after a nearly 560% gain the last 12 months. On the plus side, this fuel cells company does appear to be building consistent revenue at last as demand for hydrogen fuel cells picks up steam. But Plug has also been selling a lot of stock lately, which is a pretty good sign it needs outside capital to keep going. I'd be cautious--and while renewable energy stocks are extremely popular now it may not be a bad idea for those with a big gain to move onto some other aspect of renewables that hasn't received so much good press--like the offshore wind stocks I mentioned earlier for example.

Guest

4:57

I am up 101% on AES. Would you take some profit or continue to ride it because of the green deal ahead.

Roger Conrad

4:57

AES has almost reached my highest recommended entry point of 22. But I still view it as relatively undervalued at 14.3 times expected next 12 months earnings, particularly relative to other utilities with renewable energy upside.

it's absolutely true that the stock has reached the low 20s on other occasions over the past 20 years, only to crash back under $10 a share. That's primarily been because a sub investment grade credit rating and over exposure to emerging markets--and this is definitely a new AES. Kudos on buying this stock when it seemed no one else wanted it. And of course everyone should manage their personal portfolios to achieve some degree of balance. But my expectation for this stock is a valuation that's more typical of its industry and that reflects its strong position in renewables and energy storage on a global basis--and my considered view is that's very likely a price in the neighborhood of $30.

Guest

5:01

oxy I am -77% what is your advice on this stock for the future

Roger Conrad

5:01

I'm sure my partner Elliott Gue will have a lot more to say about Occidental Petroleum during our Energy and Income Advisor webchat, which for those of your who are subscribers will be on November 30. But our view in brief is this is the kind of asset-rich, highly leveraged company that can quickly make up lost ground and then some when the energy sector does turn. And we're convinced this company is also showing its staying power in an extremely difficult environment and that's step one for a comeback.

Lou G.

5:08

Roger, thanks again for all your great insights. I have an old-time question: in the past you had a seasonal trade based on the fourth quarter strength of utility stocks. I do not remember the stock. What is it, and is it a good buy this year (perhaps too late)? Thanks again and have a great Thanksgiving!

Roger Conrad

5:08

Thanks for bringing that up. it was a seasonal pattern I noticed that big portfolios seemed to buy utilities starting in October and generally continuing to push them higher into late December. My thought was it had to do with the desire to keep exposure to the stock market while reducing risk to previously achieved gains--and to a lesser extent "window dressing" in mutual funds, so investors would get a greater impression of safety from published materials.

My recommended vehicle for playing it was generally the ProShares Ultra Utilities (NYSE: UPW)--which rises 2 percentage points for every one point move in the Dow Jones US Utilities Index--not the DJUA itself but an index that mirrors other large US utilities indexes. This would have been an exceptional year for this strategy, as UPW is up about 21% since Sept 30. But the "indicator" had basically stopped working with any consistency the past few years--with other factors taking more importance.

At this point, I think the better bet in the utilities

Roger Conrad

5:10

sector is to look for companies left out of the rally that should be able to close the valuation gap with other utilities--rather than buying the index, which is going to be heavily weighted toward NextEra and other large caps. But I do look at this as a potential strategy from time to time--as well as the ProShares UltraShort Utilities (NYSE: SDP), which wins on a downturn in the sector and is often a solid way to hedge.

Jimmy

5:15

Whenever a preferred stock issue is called any premium in the trading price evaporates. Is there any way to try to determine when a preferred is about to be called.

Roger Conrad

5:15

Generally speaking, in a low interest rate environment like this one, you should be prepared for any solid, investment grade company to call any bonds or preferred stocks they can that have coupon interest rates at least 2 percentage points above a company's going market rates. You can determine these exactly by looking at the yield to maturity of the company in question's longest dated debt. If, for example, it has a 30 year bond yielding 2.5% to maturity (not uncommon for utilities now), management has a very strong incentive to call any shorter dated bond it can with a coupon yield of 4% or higher--and we've seen companies call securities for an advantage of as little as a percentage point in fact.

Of course when a company is lower rated, there's less chance of them being able to realize sufficient savings to make calling worthwhile. But then your risk owning the security is higher as well.

Roger Conrad

5:16

Bottom line if there's an advantage for a company to call a security in this low rate environment, you should assume it will and invest or sell accordingly.

Hans

5:22

Roger, What is happening to CHL it is down almost every day now.

Roger Conrad

5:22

I answered a question on China Mobile earlier in the chat. To summarize, the shares are not down for any reason to do with the company's underlying business, which is seeing enormous success in 5G adoption in China and has been able to roll out the world's largest 5G network more cheaply and faster than most thought possible, as equipment provider Huawei has been forced to focus on supplying its home market in the face of several government bans.

Instead, the reason China Mobile is dropping--along with shares of other Chinese stocks--is the Trump administration is trying to enact an investment ban on them. This could involve delisting from NYSE, as well as a forced sale of shares amounting to 4.5% of those outstanding on a global basis. It remains to be seen what will happen to ADRs if they are delisted from the NYSE. China Mobile won't have any problem finding other investors and it's flush with cash--so there will be no impact on the underlying business.

Roger Conrad

5:23

Given where the low point where the stock's valuation is now (7 times earnings), I think the best course is to wait and see what happens. This is the kind of policy that could be reversed very quickly by a new administration, especially since it only potentially hurts US investors.

D

5:26

Your original buy recommendation on VLO was a little over $60 per share. It's been all the way down to the mid $30s and fortunately recently rebounded to mid $50s. What is your current recommendation here?

Roger Conrad

5:26

We still think it has considerably more upside--again this is a company that's proven resiliency in an horrific and unprecedented environment in its industry. And it's well positioned for a recovery with the economy and as election year rhetoric fades into the background. We'll have more discussion on Valero and other energy stocks during our Energy and Income Advisor webchat, which will start at 2 pm Nov 30.

Guest

5:28

Roger, would you consider covering SSE plc(SSEZY)?

Roger Conrad

5:28

Looks like a good one to put on the list as a high yielding UK/Irish utility. I don't have an opinion for you right now. But thanks for the suggestion.

WWest

5:30

Thanks for your answer. I just retired July 1 and want to accumulate safe but higher dividend stocks in my IRAs to help fund retirement expenses.

Roger Conrad

5:30

You're welcome. As I answered in a previous question, I'm not planning to retire any time soon. But I am at the point where these are the kind of stocks I focus on for my family as well as portfolio building. Thanks for tuning in today!

KT

5:32

Another newbie question. Should I consider the 200 stock report card as reference information? In other words, can I just buy/sell based on what you have in the aggressive and conservative portolio. That report card is very impressive but I don't want to become an expert in Utility stocks.

Roger Conrad

5:32

I think that works. The Utility Report Card is where I include a lot of detailed information on individual stocks--which of course includes what's in the Portfolio. But the Portfolio stocks are where my favorites are--with the best fresh money buys always the month's two focus stocks.

John

5:37

Good afternoon Roger, I want to know your opinion on which stock has the best overall potential going forward for total return Enbridge or TC Energy? Thanks for all your great work.

Roger Conrad

5:37

Thank you for reading! I think they're pretty much coequal in that regard. Both are anticipating upper single digit annual dividend growth from executing what are very low risk growth projects. Both are heavily contracted under fee-based arrangements where cash flow doesn't depend on volumes and where customers are financially strong. I would say that TC Energy is likely going to continue to trade with prospects for the Keystone XL pipeline getting built. Enbridge will follow prospects for Line 3 expansion in Minnesota--and both projects are a bit less certain with a new administration in Washington. But both also have plenty of places to invest to grow if these pipelines are ultimately never built. I think that's a greater risk for Keystone than Line 3--which may actually have all the approvals it needs by the end of the year. But bottom line is these are well scaled and strong companies paying very safe dividends.

KT

5:39

I've purchased TOT from the CUI plus list and been wanting to ask about the withholding that is done by France (I think). I'm a US citizen and brokerage is Etrade. I did notice in my account that I got paid dividents from TOT but they deducted some for witholding.

Roger Conrad

5:39

Yes, there is 15% withholding of dividends, which you can essentially claim as a credit on your US taxes. it's a bit of a complication you don't have with Chevron for example. But Total is I think worth the extra effort--and the yield is still north of 7% even if you don't reclaim the tax withheld.

Dennis

5:40

CHL --- Any drivers to change the downward momentum?

Roger Conrad

5:40

Like I said, I think the downward momentum is pretty much the threat from the Trump Administration that the ADRs get delisted and have to trade over the counter. I'll be following this situation closely going forward. But I think with the dividend this high and P/E this low, we're really best off waiting to see how this shakes out.

Roger Conrad

5:41

This is a huge and dominant company and affected shares are just 4.5% of global float. There will always be a way to buy and sell it.

D

5:48

Your recommendation on AQN has been a good one. Now sitting on its 5 year high, is it time to take some profits?

Roger Conrad

5:48

Thank you! I'm happy you were able to take advantage. Algonquin Power & Utilities shares right now are basically between my highest recommended entry point of 14 and where I'd recommend cashing some out, which is high teens or higher. I thought the Q3 results were right on target and the recent expansion in renewables will help the company continue to lift its dividend at the target rate of 10%, or at least the upper single digits. The next boost is slated for May 2021. To some extent, this stock is benefitting from its renewable energy focus. There's a case to be made that it could trade at an earnings multiple closer to that of NextEra Energy (32.5X expected next 12 months earnings) than its current 22.5X. I think it makes sense to expect some discount, since AQN also has assets outside the US and is smaller. But given the recent solid results and guidance, I think the stock's fairly valued now rather than overvalued--and pending what happens the next couple weeks I may raise the buy target to 15 in Dec.

Lawman

5:53

What are your short and long terms projections for AETUF?

Roger Conrad

5:53

Arc Resources is a survivor and Q3 results definitely reflect that. I think as more export infrastructure is built for Canadian NGLs and eventually LNG that we're going to see better selling prices and better recognition from investors regarding this company's operating and financial cost discipline--as well as the low cost of its reserve development the past few years. The dividend cut earlier this year was painful at the time but has resulted in an improved financial position that ensures this producer will participate in the recovery we envision picking up steam over the next year. I think anyone who has held it this long should continue to. And it's starting to look like a buy again for patient investors.

Lawman

5:58

Is AGLXY a buy at this level?

Roger Conrad

5:58

I think so, at least for anyone who's not already heavily into it. As I've said several times the past couple years, this is one I should've said good bye to a couple years ago, when Australia's Labour Party failed to dislodge the ruling National/Liberal Party in national elections. I thought at the time AGL could benefit from working with a what was supposed to be a pro-business government, which as a promoter of fossil fuels would look favorably on its position at the country's leading producer of coal-fired electricity. Instead, the company has been caught between green regulation at the state level and a federal government that's taken up the utility bashing cudgel to shore up flagging popularity. And the whole situation has been made all the worse by the pandemic driving down demand for electricity and wholesale prices, hitting AGL earnings.

What I will say is this company continues to demonstrate its resilience in a tough environment, and has kept its head above water at least with regulators since

Roger Conrad

6:01

replacing its CEO. The company also continues to successfully invest in energy storage and renewable energy, which continue to expand despite the National/Liberal party's opposition. And it now trades at such a low valuation reflecting such low expectations/ heavy bearishness it's not hard to envision a strong recovery. I don't think we can be in any hurry for a recovery. But if you're patient, this is a value that I think will be worth at least twice what it is now in a couple years, even while paying an upper single digit yield twice a year.

Lawman

6:06

Is AMLP worth buying at this depressed level?

Connecting…

Your current subscriptions

None

Register now to continue managing your subscriptions

E-mail Address	Chat Owner	Status	Remove

Enter your email address to be notified when Sherry Roberts hosts a chat