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

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

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Roger Conrad

6:06

I generally don't favor the MLP ETFs when so many operationally and financially strong midstream companies are selling so cheaply--and closed end funds like TYG and KYN offer so much leverage to a midstream company as I noted answering a question earlier in the chat. AMLP is very heavy on PAA (11.2%), MPLX (10.8%) and other big cap midstream companies. So it would benefit from a midstream recovery. But again I prefer different vehicles.

Lawman

6:11

What do you project will happen to MLP's under Biden?l

Roger Conrad

6:11

Well, if by some chance there is an increase in tax rates for investors with $400,000 plus in annual income as proposed--or a lift in corporate taxes--I think it would make MLPs that much more attractive as a structure. But the most important driver of investor returns is going to be the economy--if a vaccine corrals the virus and Washington can pass some stimulus, we'll see a rebound in energy demand and prices and that should push prices for midstream companies and MLPs higher.

I do think these companies have proven their resilience and have adjusted to the bottom of the cycle. That makes me confident in their dividends going forward and ultimately their ability to recover.

As you probably gathered from my answers to questions earlier in the chat, I'm definitely not of the mindset that a Biden Administration will do everything to the oil and gas business the Trump campaign claimed it would. I do think there will be some changes on the margins like greater regulation of methane emissions and tougher

Roger Conrad

6:14

permitting of new drilling and energy infrastructure. But the first has been supported by industry for a while and it's hard to see a tougher permitting process having any immediate impact on earnings, with companies cutting back CAPEX to the bone and suspending growth--just as saying we're going to open up Alaska to drilling doesn't mean anyone is going to spend money there. And I mean it when I say that there's a case to be made that tougher federal permitting could actually speed along the projects that are approved by making them more difficult to shoot down in court.

Bottom line, I think midstream was due a recovery this year no matter who became president.

Jason

6:20

Can you write more on the effect of alternative energy on energy stocks. I am concerned that some holdings, even natural gas related will suffer. Recently D decided to abandon its pipeline projects, as well as others. I wonder how many of these related companies will be valueless some day. Here are some that I am concerned about (because I hold them) and have been CUI type recommendations. Can you comment on which would not be good longer term investments. TRP PBA ENB EPD ET OKE NS SUN SHLX UGI TOT BP RDS(a or b) KMI.

Roger Conrad

6:20

Economic history is full of industries that went the way of the telegraph--if the affected companies were unable to adapt. But to me it's far from clear that will be the case for any of the companies you've listed--all of which we either track in CUI or Energy and Income Advisor. What we do know is basically each of these companies on your list has managed to weather this nightmarish environment in 2020--in fact only four of them actually cut dividends this year.

If I had to rank them in order of least preference, i would say I least prefer SHLX--mainly because its general partner won't tell us what it's plans are, BP and RDS mainly because I prefer Total and Chevron as super oil bets. ONEOK, NuStar and Energy Transfer are probably the most aggressive stocks on your list in the midstream space. But all three look poised for a profit rebound next year, which from the looks of things actually began in Q3.

I would agree that renewable energy is on the rise--costs are dropping rapidly and the storage challenge

Roger Conrad

6:23

is drawing a lot of attention and money--so it's a fair bet we'll see more economic solutions. But the infrastructure these companies have is definitely used and useful. And while it's hard to predict what will happen 20 years hence, what we do know is an economic recovery next year will take energy demand and these stocks higher.

Lawman

6:27

As between BEP and BEPC which is the better buy and why? Are either or both buys at these levels? Will these stocks prosper under Biden, and has this already been priced in?

Roger Conrad

6:29

Oops, looks my answer was eaten just then. To answer your question Lawman, I don't think either one is a particularly good buy right now. But BEP is definitely the better bargain at 57 and yielding 3% than BEPC is at 72 and yielding just 2.4%--they have the same economic interest and pay the same dividend. So there's no reason for the value gap, other than the fact that some investors can buy BEPC and not BEP.

6:30

For renewable energy investing, however, I definitely prefer the offshore wind companies I highlighted in the November Feature article. Brookfield will be a buy again. But after this historic run, I think a little patience is called for.

Lawman

6:32

EPD has been moving up as of late. What are your short and long term prospects for the share price of this stock. Will EPD be able to continue increasing its dividend and, if so, for how long?

Roger Conrad

6:32

I think Enterprise should be trading at a yield of between 5 and 6 percent. And I believe it will be next year as the energy sector cycles out of its depression. Management has basically telegraphed the next change in the distribution will be an increase--though I think that will probably not happen until next year. Until then the company is going to focus on self-funding everything with free cash flow, including debt retirements and share repurchases.

Lawman

6:36

ET doesn't seem to be able to get any traction. What are your thoughts on ET, and is it a but at this level?

Roger Conrad

6:36

I think so. They did cut their dividend in half, which for some reason seemed to surprise some people--despite the fact that it was yielding over 20% at the time. But after the strong Q3 results and guidance, it's clear Energy Transfer made this move by choice to speed up deleveraging. i think that's positive and in any case you don't see too many dividend yields approaching 11% when the company is also generating enough free cash flow after dividends to buy back stock and pay off debt. I think this stock will recover over the next 12 months and rate it a buy up to 10 for more aggressive investors. There's the Dakota Access Pipeline case that will affect the stock--but it accounts for less than 5% if ET's EBITDA, That's not much of a hit even in the unlikely event the company loses its court case.

Terry

6:36

Thank you Roger.

Roger Conrad

6:36

Thank you Terry.

Lawman

6:41

EXC has held its value and dividend. What are the prospects for this company, and is it a but at this level? Will EXC continue to raise its dividend? How would you rate EXC in comparison to other utes?

Roger Conrad

6:41

Exelon is definitely priced at a sizable discount to other utilities, especially those most closely associated with renewable energy. But I think there are several factors that could close that gap significantly over the next 12 months, starting with a strategic review that could lead to a separation of the nuclear power plant fleet from the regulated utility business. That's basically an acceleration of the plan in effect the last five years plus, where Exelon has run its nuclear plants to maximize free cash flow to invest in rate base growth of its regulated utilities. There's a chance Illinois will at last pass legislation needed to keep two of the company's nuclear plants running in the state--which would increase the value of the deal. But I'm looking for a nuclear spinout to be a value booster once details are better known regardless. At that point we'll see what the company is going to do with the dividend--though I still expect a low to mid single digit boost in January. Definitely a buy.

Lawman

6:45

One would thing that under Biden, uranium and uranium stocks, would do well given that they emit no greenhouse gasses. Would you be a buyer of uranium stocks at today's depressed prices?

Roger Conrad

6:45

That might be, though I think the real test for nuclear is still Southern Company's ability to bring the two new units at the Vogtle site in Georgia into production by Nov 2021 and Nov 2022, respectively. if it can stick to its current plan and get Georgia regulators to support it for the cost of pandemic-related delays, I think it will be a major plus for new nuclear even in the US, where there's been hostility from various environmental groups. If I were to look at uranium, I would look again at Cameco (NYSE: CCJ)--but this is an industry that needs Southern to deliver. Otherwise, what we're going to see vis a vis nuclear in this country is a slow shutdown of the existing reactors and a lessening of uranium demand as they are closed.

Lawman

6:46

Should gold be a part of one's portfolio, and if so, what percentage of a portfolio would you put into the yellow metal?

Roger Conrad

6:46

Yes i think so. I don't have a hard figure for you. And some people might want to consider gold stocks instead, which are leveraged to the metal--something like the Vaneck Gold Miners ETF (NYSE: GDX) we've recommended from time to time.

6:48

What is happening to PBA it just won't move higher

Roger Conrad

6:48

It's been a tough time for midstream companies, even when they've continue to demonstrate resilience as businesses, as Pembina most definitely has. Of course, this one also hasn't dropped as much as some midstreams have. And it is priced in and pays dividends in Canadian dollars--so there is a currency effect. But I think we just need to be patient--it was up 32 cents today for the record on its NYSE-listed shares.

Lawman

6:50

How would you rare KMI against EPD? Is KMI a buy at this level?

Roger Conrad

6:50

Kinder is definitely a buy at these levels, in fact my highest recommended entry point is 22. As a comparison, Kinder is a C-Corp while Enterprise is an MLP. Kinder also is much heavier into natural gas pipelines, while Enterprise has positioned itself for the export business and particularly natural gas liquids. But both are large, financially strong companies that have proven resilience. Both are buys.

Lawman

6:53

How will the increasing popularity of electric cars impact MMP that seems to get most of its revenues from transporting gasoline?

Roger Conrad

6:53

I don't think much if at all at least for the next several years. The big factor on fuel demand going forward is going to be the economy and getting the pandemic under control--that's what will restore normal driving (Magellan by the way reports much more normal patterns in Q4 so far). I think MMP is a good takeover bet in the midstream space by the way.

Lawman

6:54

What are the prospects for the USD vs. the CAD, and how will that effect companies, such as AETUF, that pay dividends in CAD?

Roger Conrad

6:54

I think the Canadian dollar should be stronger against the US dollar the next few years than it has been the past few. That in part follows our more favorable outlook for energy--which would also be a plus for Arc, which pays dividends and is priced in Canadian dollars. Bullish.

Lawman

6:55

What are the prospects for the USD vs. the Australian dollar, and how will that effect companies, such as AGLXY, that pay dividends in Australian dollars?

Roger Conrad

6:55

Yes, I'm similarly bullish on the Australian dollar for much the same reasons, and It would definitely be a plus for our AGL!

Lawman

6:57

What are the prospects for NTTYY? Are you a buyer at this level?

Roger Conrad

6:57

NTT is a recommendation in our Aggressive Holdings. I like it all the way up to 28. As I indicate in Utility Report Card comments, I like the DoCoMo merger and look forward to steady dividend growth of upper single digits.

Lawman

6:59

What are you views on the Oneok and Plains companies and their stocks?

Roger Conrad

6:59

Both are highly sensitive to volumes--as the analysis in my Utility Report Card comments for both companies makes clear. I think both have shown resilience to the current environment and that dividends should hold this cycle at current levels--though Plains did cut earlier this year. ONEOK is a buy on a dip to 30, Plains is in range now, but again for more aggressive investors given the volumes exposure.

Lawman

6:59

The companies that survived LINE/LNCO ended up failing miserably. What went wrong?

Roger Conrad

6:59

Weak oil and gas prices did them in--tough to be a smaller player in this business at this time.

Lawman

7:00

What are your short and long term projections for the price of crude oil and nat gas?

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