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

Return to

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

Prev Page View Full Chat Next Page

Roger Conrad

7:00

We think both will go higher over the next year, but favor oil given the supply glut we now have with natural gas in North America. Keep in mind that stronger oil prices will mean higher production levels and therefore greater levels of associated gas.

Lawman

7:05

As between T and VZ which do you favor and why? Are either or both worth buying at these levels? How safe are the dividends of these two telcoms?

Roger Conrad

7:05

I like them both, AT&T is a buy all the way up to 40 and Verizon below 60. AT&T's exposure to the media business has meant its earnings have been hit much harder than Verizon's this year. And the debt it took on to finance the Time Warner purchase has been a subject of concern as well. But even this year, AT&T has generated massive free cash flow after industry leading CAPEX to fund dividends and pay off debt.

I think both companies' dividends are quite safe and will remain well covered with free cash flow the rest of 2020 and in 2021--when the media business should recover and we'll finally start seeing revenues from 5G. Meantime. both are buys up to my highest recommended prices.

Guest

7:09

Great job, as always, Roger. Your current thoughts on National Fuel Gas, please.

Roger Conrad

7:09

Thank you! I like National Fuel Gas at these levels. As I note in my Utility Report Card comments, the purchase of the Royal Dutch Shell assets in Pennsylvania has already paid off in higher sales and margins. Higher natural gas prices are now starting to help the share price. But NFG's ability to lock in those prices with hedging should help make the earnings benefit more lasting and point the way to another low single digit dividend increase in June.

I had thought this stock would work out a lot faster than it has--the pandemic basically interrupted some pretty favorable trends in the business. But I'm very comfortable continuing to recommend it all the way up to my highest recommended entry point of 55.

Jimmy

7:16

Regarding AES, I bought on your initial recommendation several years back and rode it to a really large gain early this year only to see that gain turn to a major loss a month or so later. Now I am back to a very nice gain and wondering if perhaps its time to take some off the table (holding 6500 shares). I would love to have your recommendation. Thanks

Roger Conrad

7:16

I understand the sentiment. This stock has rallied to this low 20s level on several occasions the past few years only to give it up. My view each time it made it here was the stock was deserving of a higher valuation and had the business momentum to carry it there. And I'm of the same mind right now. In fact, with an investment grade credit rating from two of three agencies and shed of considerable debt and operating risk, I'm even more convinced of that now.

That doesn't mean we won't see another full on retreat in the share price. But I would also point out that AES' last big decline happened when the market cracked this spring. Absent such a major event and with Q3 earnings showing strong momentum--and with so much enthusiasm for renewable energy focused utility stocks--I don't see any reason to expect history to repeat itself.

Barry J

7:22

I have suffered great losses purchasing CHL and VST. What are your expectations of both companies both near term and long term for each of them?

Roger Conrad

7:22

I've answered several questions on China Mobile during the chat--the big decline we've seen the past few days is primarily because of the threat of an investment ban from the Trump administration of more than a dozen Chinese stocks. At this price, I don't think it makes any sense to do anything else but hold on--especially with the company's business momentum picking up steam with its 5G adoption reaching over 100 mil customers.

As for Vistra, as my Utility Report Card comments made clear, its business is also proving resilient in a weak environment--with management again raising guidance. My view is as the economy begins to pick up steam next year, so will the wholesale and retail businesses of this company and so will its share price. Meanwhile, its free cash flow surplus makes it a takeover target at this price of less than 9 times expected 12 months earnings.

Bottom line is I'm not giving up on either stock at this time and look for solid recoveries next year.

Guest

7:29

Do you rate BCE a but at this level and, if so, why?

Roger Conrad

7:29

Yes, I rate it a buy all the way up to 50. I think BCE again proved its resilience and dominance in the Q3 earnings and guidance, which I highlight in this month's Utility Report Card comments. I look for 5G adoption to lift next year's earnings for BCE, as will a better performance in the media business. Meanwhile, it offers a yield of nearly 6% that's growing at a mid-single digit rate--with the next increase slated for February 2021.

Guest

7:38

Do you think there will be any appetite under the Biden regime to change the tax advantages for MLP's?

Roger Conrad

7:38

At this point, I think meaningful changes to the tax code are a low probability event--even if Democrats wind up with a narrow majority in the US Senate. One reason is any proposal will have to gain approval of moderate Democrats.. But more important, the first priorities of the new administration are almost certainly going to be getting the economy back into shape and getting control over the pandemic.

That's a point I heard made by numerous company CEOs during earnings calls, by the way. It doesn't mean there won't be changes. Just that there are going to be other priorities next year. As for MLPs, the most likely outcome of a rise in tax rates would be to make them more appealing to higher net worth individuals. Less likely would be some kind of change specifically affecting MLPs. But the real driver of investor returns is going to be macro factors affecting the energy midstream business and that means the economy.

Guest

7:43

Hi Roger. I posted a question prior to this live chat, maybe it did not go thru so here its again. What are your thoughts on PEYTO Exploration? Do you believe they have a strong enough balance sheet to be a survivor in this industry? Thanks a lot, Marc

Roger Conrad

7:43

Yes I do think Peyto has proven it can survive even the most difficult of environments. Management proved that not only this year but also in previous years as Canadian natural gas prices have lagged well behind prices elsewhere in North America due to transportation constraints. The company did cut its dividend this year in response to crashing gas prices but it's continued to generate free cash flow at some of the lowest production costs in the world. As with ARC, it's likely going to take patience to see a full recovery. But anyone who has hung in this long should continue to do so.

Guest

7:50

How can companies such as KMI and EPD keep growing even if decarbonization happens a lot faster that the market expects?

Roger Conrad

7:50

The point isn't these companies need to grow cash flows for their stocks to rise. They don't, though both do continue to grow their underlying businesses, Kinder in natural gas and Enterprise with NGLs. It's that their shares can produce big returns even if growth is subdued, as they overcome investor fears and close a massive valuation gap with the rest of the stock market.

I would also offer the opinion that the current very low valuations we see for energy stocks, including Kinder and Enterprise, are actually pricing in some pretty fast decarbonization.

Mark Z

7:53

OKE has take a relative pounding this year. Given the rosey comments made in the recent Report Card, do you think it will recover and perhaps earn an upgrade to B from C?

Roger Conrad

7:53

Q3 was a lot better than I expected for sure. I think this business momentum has to be sustained over a few more quarters before ONEOK will have the metrics to support a B rating, rather than a C. And that's also needed before I'll raise the buy target above the 30. But the Q3 numbers were promising. And if these volumes are at least steady for Q4 with Q3, free cash flow will rise enough for the company to meet its deleveraging targets--which will be a huge step forward for dividend safety.

John

7:56

hello roger, I am a retiree and looking for "safer" income investments. thus my subscription to CUI....and happy for it. I'd like to see an update on bonds and/or preferred stock (individual, funds or ETFS are all of interest) that you would recommend at this time.

Roger Conrad

7:56

Thanks for the idea. It is time for another fixed income update. In the meantime, if you want to track the health of any bonds or preferred stocks you own, the data presented in Utility Report Card is a good resource. The same factors that drive stock returns also determine the safety of a company's bonds and preferred stocks.

BobD

8:02

Hi Roger, Over the last few years I have been following the recommendations in CUI and EIA while trying to balance some percentage of renewable energy companies in the mix. I find now that when I want to add to my positions that nearly all the renewables are overpriced according to CUI. If I continue to invest in the fairly priced issues, I would tend to start biasing the portfolio more toward more traditional energy companies while avoiding the renewable ones. Should I just let this happen, or wait for the renewables to come more in line with their value, or are there some renewable stocks I'm missing that you would recommend? Thanks as always for your advice.

Roger Conrad

8:02

One alternative to look for renewable energy stocks that still rate buys would be to check out the offshore wind stocks I highlighted in the November Feature article. They're the one part of the renewable energy universe that I think does not fully reflect their likely returns or the recognition they'll receive--once federal regulators remove roadblocks to development. You can also check out the yieldcos AY and CWEN when they trade below our maximum recommended entry points, which for both is 30.

As for a balance of renewable energy versus conventional energy stocks, my view is the latter probably have more upside from an economic recovery next year. And it's likely after such a big move this year, stocks like BEP and others are due for a pullback.

Dennis

8:04

AGLXY --- Will anything turn AGL Energy around?

Roger Conrad

8:04

I think we have to be patient, but a stronger economy with the pandemic under control will definitely help energy demand in Australia, which should help sales and margins in the retail and wholesale energy businesses. I also think a stronger economy will help the Australian dollar, which has historically tracked commodity price trends. In any case, as I've said, the stock trades at such a discounted valuation it won't take much good news to lift it.

jerry felsenthal

8:10

What were SJI's third quarter results?? Also, why is SJI's stock price so low, for an "A" company??

Roger Conrad

8:10

I highlighted South Jersey's results in the November issue of CUI--with extensive comments in the Utility Report Card. I was encouraged by the boost in 2020 full year guidance as well as successful execution of several strategic moves and strong customer growth.

I think the shares have been depressed for several reasons. One is the more negative sentiment surrounding most natural gas distribution utilities in the second half of 2020, reflecting what I believe is an overblown view of sector risk. There was also a rumor later proved false the company has lost money trading energy as Portland General did. And some remain skeptical about the company's unregulated operations. In any case, all that is well reflected in the share price of just 13.6 times expected earnings--a number that reflects very low investor expectations that won't be hard to beat.

For more on SJI, check out my EEI report--it's one of my five post conference recommendations.

Guest

8:13

I know you do not follow enph or spwr but have you any comment on them

Roger Conrad

8:13

I do cover SunPower in the Utility Report Card. I have not Enphase Energy to date but it is on my radar. My overall impression for both is they've had a really good run as stocks this year and operate in a very competitive industry as manufacturers--which makes it hard to justify their very high valuations. I continue to prefer adopters of renewable energy, who always win as component prices drop and efficiency improves no matter who is making the components.

Marie

8:16

This is to continue with the question about retirement. I subscribe to CUI+. In your opinion, 1.CUI+ stocks are the best choices for my retirement portfolio? and 2. Please name 3 best value stocks for long term retirement investment.Thanks

Roger Conrad

8:16

I think the way to think of CUI Plus is as a unified portfolio. But I realize not everyone is taking all the recommendations and allocating exactly as we are. For investors who like you are looking for individual stocks from our list, you can literally buy anything that diversifies your portfolio, provided it trades below my highest recommended entry point.

PeteH

8:21

Hi Roger, Do you think that a switch out of ED (quality grade B + NY state) and into EIX (quality grade A + CA state) would make sense? Would you consider EIX a safer dividend compared to EIX? What about their respective dividend growth prospects?

Roger Conrad

8:21

I don't think that's a bad idea. Edison is also a Conservative Holding and I always favor Portfolio stocks. I don't think either company is in danger of a dividend cut--a lot more would have to go wrong to get anywhere close to there. But I do think that Edison's fate is more in its hands than Con Ed's. All it has to do (not easy) is continue to effectively harden its system against wildfire damages and then invest in California's energy transition in rate base. Con Ed in contrast has New York regulators hanging over it. I think this is more likely to just slow growth rather than threaten the company's financial health. But in either case, Edison is the more attractive of the pair.

BKNC

8:23

Quick question about ALSK. With the takeover bid should we sell or wait for higher potential bid. I remember they had 30 days for a higher offer.

Roger Conrad

8:23

We're basically risking 11 cents at this point by holding onto ALSK rather than taking the profit. Given that other fiber broadband companies have seen bidding wars and that a higher offer would probably be at least $3.50, I'm comfortable risking that for the promise of a fatter gain.

BKNC

8:23

I just joined. I saw your comments about ALSK. You can ignore my question.

Roger Conrad

8:23

No problem. Good question.

Dan E

8:28

With respect to VST, It appears to be a great story today and moving forward. I have listened to the VST investor day conference, their Q 3 earning conference call and I guess I share the VST management's frustration on their low market valuation. What would you think is going to be the catalyst to get the share price moving higher? Thanks for your insight, and time to host this event.

Roger Conrad

8:28

My pleasure, thank you for participating and asking questions. I agree completely on the Vistra Energy story. My thought for a while has been the most likely catalyst for a share price recovery would be the one I thought we'd see this time last year--which was basically a stronger economy. I think that will likely require getting the pandemic under control in this country but I do see it likely next year. I also think this company is a prime candidate for a takeover, with a price in the mid to high 20s likely. Either way, it's the kind of stock I want to be patient with now--as it has proven resilience as a business this year.

Guest

8:29

if AES hits $30 how much would you sell. I own 1000shs

Connecting…

Your current subscriptions

None

E-mail Address	Chat Owner	Status	Remove

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