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11/30/21 Capitalist Times Investing Live Chat
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AvatarRoger Conrad
2:11
are here because of your interest and trust in us.

Q. Good Morning Roger:
 
Is there a way I could get an excel and/or PDF of the Utility Report Card from Dec 2018? I can find the back issues of the newsletter. But when you hit the big green box for “UTILITY REPORT CARD” it takes you to the current one.
 
I was thinking of doing a simulation of buying the A and B rated stocks most below their max recommended entries and comparing to buying those closest to but not above their max recommended entries. I’d like to try that for Dec 2018, because the Utilities Select SPDR (NYSE: XLU) was high then and it is now also.
 
I’m wondering if I should rotate out of some of the stocks I already own that are big winners into some of those that are cheap now. I know you can’t give specific portfolio advice. But I thought you’d be wondering why someone would go to all this trouble.
Thanks for all your excellent work on behalf of us subscribers. I’ve calculated a 21% return on the stocks I’ve bought via CUI for 2021 (through end of October). Regards—Kerry T.
 
A. Hi Kerry.
 
Thanks for those kind words. I’m glad you’ve done so well this year with the recommendations, as that return is more than twice what the XLU has done as the most popular utility stock ETF.
 
Unfortunately, we don’t currently have Utility Report Card back data available on our sites. I will look into what we do have in other places. There is a lot of data there.
 
As for the question of rotation, I will be giving my end-year recommendations in the December issue of CUI. I think there are a number of opportunities. That includes some possible wash sales of underperformers as well.
Q. Good morning, Roger. 
 
I have a question for the next live chat regarding Southwest Gas (NYSE: SWX. What are the factors holding back the shares from immediately jumping to the offer price? Is Carl Icahn's offer active at this time, or is there a given date for him to make a formal offer?—James C.
 
A. Hi James.
 
Mr. Icahn’s bid for Southwest Gas is currently in the form of an “unsolicited tender offer.” One reason it hasn’t resulted in an immediate boost in SWX shares is it’s non-binding. Another is it’s opposed by management, which I think rightly considers it to be low ball. And there’s literally never been a hostile takeover of a regulated utility, mainly because the number of legal hurdles.
 
 
Third, I think investors rightly perceive this as a ploy to get control of the Board and therefore affect company policy, without having to take on a $4.5 to $5 billion cash expense plus another $5.8 billion or so of assumed debt. Mr. Icahn has named 10 nominees for next year’s election, enough to replace Southwest’s entire board. That includes three nominees he says are “qualified” to replace the current CEO.
 
The latest development is that the antitrust waiting period has expired for Southwest’s acquisition of the Questar Pipeline from Dominion Energy (NYSE: D). That removes the last major regulatory hurdle to this deal and should allow it to close by the end of December.
 
My view is this acquisition will be earnings accretive for Southwest, in both the short and long term. And I believe the same will be true of the company’s purchase of Riggs Distler, which for the first time gives its utility construction unit Centuri the scale needed to be a standalone entity.
 
2:12
 
Together, they should provide the spur to keep Southwest’s earnings and dividends growing at a mid-single digit annual rate, should the company remain in its current form. That I believe will take the stock well past the $75 mark the next few years and eventually to a new high in the mid-90s or higher.
 
On the other hand, if Mr Icahn succeeds in making big changes, we could see those gains a lot faster. But either way, I think it’s well worth holding onto Southwest shares, rather than tying them up with the tender offer.
 
 
2:13
 
 
Q. Hello Roger,
 
I read with interest Vistra Corp’s (NYSE: VST) plan to buy back $6 billion in stock over the next five years. According to Etrade, VST's current market cap is ~$9 billion. Am I reading this correctly that they are planning to buy back 2/3rds of their stock? Thanks much.—David F.
 
A. Hi David
 
Those are the numbers Vistra has laid out. They're of course contingent on being able to generate the expected levels of free cash flow, but most of that does appear to be under management's control as it involves cost savings. 
 
This announcement should be viewed as the result of what was a comprehensive strategic review. It's been management's contention the past couple years that the shares are grossly undervalued and they've even indicated an interest in going private. Buying back up to 60% of market cap could be construed as a big step toward ultimately moving in that direction. But the important thing for us--as I noted featuring the company in the Aggressive Focus section of the November
CUI issue--is this is a real sign of strength for a stock trading at less than 7 times expected next 12 months earnings.
 
The announcement has triggered a boost in Vistra shares. But the rebound so far is only back to the top of the range they’ve held since early March 2021 immediately following the hit from Winter Storm Uri. And shares are still at less than five times expected next 12 months earnings. I think there’s a lot more upside ahead, though we may have to wait for the company to prove itself this coming winter.
Q. Roger:
 
Hope you had a good Thanksgiving.
 
I am wondering about the change at the top for Pembina Pipeline (TSX: PPL, NYSE: PBA). The market seems to be reacting poorly to the news. Is there anything to this? Are you still high on PBA? Thanks--Jerry F
 
A. Hi Jerry. From this outsider’s perspective Mick Dilger’s departure seemed to be rather sudden. That was also the take from the Toronto Globe and Mail business reporters, which sometimes have insights on this kind of thing. The CIBC analyst said “it is possible there was a difference of opinion with the board with respect to strategy. But the bottom line is until the company issues more clarification everyone is just speculating. And in the meantime, the CFO of seven years moving to the CEO position would seem to indicate a large degree of continuity in strategy—including the “guardrails” that management has cited as its guide to what asset expansion/acquisitions to pursue.
The market hates uncertainty. And few things raise more questions than when a long-time and highly respected CEO suddenly leaves a company. I also think the fact this news comes at a time when North American midstream stocks in general are already under pressure on the lack of volumes recovery so far only accentuates the impact. But I’m encouraged by the fact the CFO turned CEO has affirmed 2021 EBITDA guidance of CAD3.3 to CAD3.4 billion, which would seem to indicate nothing has changed financially. And despite the stock still being up more than 35 percent this year, I think it’s still cheap with a bright future as Canada’s third largest midstream company behind Enbridge Inc (TSX: ENB, NYSE: ENB) and TC Energy (TSX: TRP, NYSE: TRP)—both of which, by the way also look cheap after selling off this month.
2:14
Whew. That's it for the pre-chat questions. Now let's get to some live ones.
Sohel
2:21
Hello Roger, Glad to join these chats. Incredibly helpful, Has your outlook on ET, PAGP, VLO changed over last few weeks?
AvatarRoger Conrad
2:21
Hi Sohel. Thanks for those kind words. We thought the Q3 numbers and guidance from Energy Transfer LP, Plains and Valero were quite good. And while obviously they're doing very different things as businesses, we believe they'll add to the gains we've seen this year as this energy price cycle progresses.

Of course, as we're seeing now with this market selloff, when program trades go into action, almost nothing is immune. But the important thing is these companies have adjusted their financial and operating policies to this stage of the energy price cycle, which means balance sheets and dividends are safe and they're increasing dominance and future upside to the cycle. The midstream companies in particular have been hit by investor disappointment in the volumes recovery, or lack of one. But our view is we'll still see one and these stocks are how to play it.
Guest
2:28
AT&T and Verizon.
AvatarRoger Conrad
2:28
These are both very cheap stocks in a sector (communications) that's obviously not in favor now, despite the solid Q3 numbers and guidance we saw from these companies and other market leaders (Comcast, etc) a few weeks ago. My view is Verizon shares are a great buy at 9.4 times next 12 months earnings, a safe yield of over 5%, no real operating issues and every indication of strong 5G adoption. I believe AT&T in the low 20s is a compelling bargain and that selling is way overdone, though as I've said before I don't see shares really recovering until management comes clean on what its dividend is going to be post the Warner spinoff. And again, the entire communications sector is taking a beating now, including analyst favorite TMUS, which hit a new 52-week low today.
AER
2:37
Hi Guys,

Thoughts on HES? How would you compare and contrast the risk/reward of HES to XOM? Thanks for all your work. Regards
AvatarElliott Gue
2:37
Thanks for the question. I covered HES at some length in the November 11, 2021 issue of Energy & Income Advisor "The Cycle Broadens." In short, we really like this name and their strategy, which effectively involves using free cash flow from their Bakken shale acreage to fund the development of their world class acreage in Guyana. In particular, I don't think the market is giving HES enough credit for Guayana -- while HES has had to spend a lot of capital on this project over the past few years, the cash flow equation for Guyana is about to flip as production ramps up over the next few years. When the dust settles, I think Guyana is self-funding in 2022 and becomes a huge source of free cash flow by 2024 that will continue for many years (likely 15+ years). We don't have it in the portfolio yet; however, as this recent correction in energy unfolds, it's an example of a name we're considering. Of course, XOM and HES are both plays on Guyana -- I'd say that XOM is less risky and is a rock-solid buy right now
AvatarElliott Gue
2:37
especially with its attractive yield. However, HES probably has more long-term upside capital appreciation potential commensurate with its higher risk profile.
Jimmy C.
2:38
You guys bring an extra sandwich. It may be a marathon.
AvatarElliott Gue
2:38
Thanks! I'm all stocked up on food and drinks.  We had one of these chats last 11 hours one time, so we'll be here as long as we need to be.
Eric
2:42
Why has BEP come down so much from earlier in the year whereas NEP is near all time highs? Is one more attractive than the other for fresh cash?
AvatarRoger Conrad
2:42
Hi Eric. One big reason is Brookfield's LP and especially its C-Corp shares ran a lot higher than NextEra Energy Partners when people were buying the so-called "Biden Trade" earlier this year. And as a result, both BEP and BEPC gave us an opportunity to sell well above our designated "profit taking" points for quite a while. As you point out, shares have sold off hard since. But they've actually been pretty steady since falling under our highest recommended entry point of 40 for both. NEP also hit profit taking territory early this year, sold off to levels where I could again rate the shares a buy and have since moved back above those levels.

As for underlying business health, both BEP and NEP had very strong Q3 numbers and guidance. NEP is likely being treated better by investors because of the strength of parent NextEra Energy and because it's raising its dividend faster. I think BEP/BEPC are more attractive on a valuation basis but both look set for strong growth for years to come.
Ron
2:43
Do you see the possibility of OPEC not gradually increasing production in light of recent COVID news as well as political finger pointing from the current administration.
AvatarElliott Gue
2:43
Yes, when OPEC+ meets later this week I suspect they will, at a minimum announce a pause in planned 400,000 bbl/day monthly output increases. They might even cut output though I'd put the probability of that at no better than 1-in-3. As for SPR releases, consider that keeping 400,000 bbl/day off the market for one month undoes 12 million bbl of releases and if they do that for, say, 3 months the effect magnifies. Bottom line: in a battle between SPR releases and OPEC+ my money is on OPEC+ as it's far easier as sooner or later, the market will become concerned about the declining barrels in SPR.
Bonnie
2:44
Hi Roger, I am sorry I arrived late in chat.   I did receive your personal reply and information regarding ETR.  Thank you so much for your insights, greatly appreciate.   My husband and I have a lot to think about regarding ETR!
AvatarRoger Conrad
2:44
My pleasure Bonnie. Like I said, I think Entergy the utility is very healthy and not expensive under 110.
Larry W
2:56
How is AGLXY looking as inexpensive investment? It has been going down, but is it “too big to fail”?
AvatarRoger Conrad
2:56
Hi Larry. I hesitate to call any company too big to fail. But AGL is Australia's leading retail energy marketer, renewable energy producer, fossil fuel electricity producer and distributed energy (rooftop solar) company. And it's about to be one of the world's leading operators of utility-scale energy storage facilities On top of that, it's rated investment grade and management has a solid record of meeting guidance its sets. I think there are reasons to be concerned about the spilt up of the company. But I also think there's good reason to expect the sum of the parts to wind up worth 3 to 4 times the current whole. This stock is for the patient only. I don't advise doubling down. And there's a case to be made for a wash sale here--since significant upside is unlikely until the spinoff. But while I wish I had recommended selling this one a couple years ago when Australia's Labor Party lost elections, I do think there's still hope here.
Hans
2:57
Elliott, What is your outlook for oil now with the new virus and opec meeting this week.
AvatarElliott Gue
2:57
I am actually working on a detailed flash alert re: oil and gas which we'll be sending out over the next few days. Basically, I think that the sell-off in oil is overdone and likely the result of speculators caught wrong-footed by the bullish reaction in oil following Biden's SPR release quickly followed by the omicron panic. One way we can see this is to compare the eaction in energy stocks to the move in the commodity. Specifically, since November 24th (the day before the holiday) oil prices are down 15% but the S&P 500 Energy Index is down just 5%. Last week, in fact, energy was actually the best-performing group in the S&P, rising 1.6% while the S&P 500 was down more than 2%. If the market were truly concerned about a prolonged bear market in crude, energy stocks would fall in line with or more than oil as they did back in March and April of 2020. The delta variant didn't really disrupt the recovery in global oil demand -- oil prices drifted higher over this time as did energy stocks.
AvatarElliott Gue
2:57
I'm not an armchair doctor or virologist. I have no idea whether this one is worse than delta or not (not sure anyone does). Moreover, I try hard to avoid allowing anecdotal evidence cloud my judgement and I fear my own personal experience with COVID infection (like a cold) makes me naturally inclined to discount the risks to demand. However, I think that a good baseline forecast is that the actual hit to demand will be more delta-like rather than spring 2020 like. If that's the case, oil has massively overreacted. Also, remember, that back in spring 2020, OPEC+ was in disarray whereas today they're far more united. In fact, given the ongoing investment shortfalls across the industry and OPEC's likely reaction (postponing planned supply increases) I think that we're actually seeing smaller probability of a temporary oversupply in 2022 and, therefore, there's some upside risk for oil early next year.
Dan E.
3:01
Hi Roger, Could you provide some thoughts on what it's going to take for D and KMI to get some higher price traction?
AvatarRoger Conrad
3:01
I think in Kinder Morgan's case, it has to be a volumes recovery, meaning that we reach a stage in the energy cycle where North American producers  start to increase output meaningfully. We've discussed reasons why that hasn't happened yet--fear of a price relapse, regulation, ESG-focused investors etc. But the driver of every energy cycle is investment. And the longer it lags, the higher prices are likely to go eventually and the more likely investment will eventually flow. I do think Kinder has proven in operating results and actions such as dividend increases, debt reduction and acquisitions that it has adjusted to the current low volumes environment. But again, investors were apparently hoping for more volumes in Q3 and have punished shares of Kinder and other midstream for the lack of them.

Regarding Dominion Energy, I think people are looking at how the incoming Youngkin Administration (VA governor) will treat its long-term investment plans, as well as a close on the sale of Questar Pipeline.
Jimmy
3:02
Elliott:  Do you think OPEC+ will react to the strategic stockpile withdrawal and the severe drop in oil prices in the past few days by reducing output and maybe delaying the planned increases that have been scheduled?
AvatarElliott Gue
3:02
Yes, I do. I think minimum baseline is that they postpone 400,000 bbl/day increase planned for January and I think the probability of a more dramatic move is rising, especially in light of threats yesterday from the Biden Admin re: potentially releasing more from SPR. Of course, as I said, I don't know much about this variant and its effect on demand; however, I think there's a growing risk that OPEC+ overreacts short term, the hit to demand is much less than implied by the recent drop in crude prices and the market actually tightens more than previously expected in H1 2022.
AvatarRoger Conrad
3:06
Following up with Dominion, the Questar sale to Southwest Gas Holdings has been loudly opposed by activist investor Carl Icahn as part of his plan to take over that company. Icahn has a $75 per share tender offer on the table that's opposed by Southwest management. But there's never been a successful hostile takeover of a utility and the real play appears to be to take control of the board without one, as Icahn has fielded candidates to replace the entire board for next year's meeting. The Questar sale has cleared its only real regulatory hurdle (anti-trust), management appears determined to close by the end of the year and the deal doesn't allow a change of mind in any case. But I think until Dominion has received the money, some will be uncertain.
AvatarElliott Gue
3:06
One more thing to watch re: oil, the market and coronavirus. Over the holiday, I spent some time examining the correlation between the relative performance of cyclical value groups like energy and the rest of the S&P 500 and the number of positive virus tests in the US. I also looked at relative performance of small vs. large stocks on a similar basis. What I found is a right fit -- when cases surge, value and cyclicals underperform and when US cases fall, the opposite happens. My hypothesis is that at some point that will change -- the negative impact of coronavirus headlines and surges on cyclical stocks will diminish as will the positive impact on growth and lockdown groups.  When that happens the pandemic will be over (as far as the market is concerned). Hasn't happened yet but if omicron "fizzles" it definitely could.
Arnold S
3:11 
Hi everyone... I have a general question about price targets from various Wall Street securities analysts.  Examples: CEQP is currently about $25 and one firm has their target at $32.  COP target is $101. One firm has Exxon price target at $95. EPD was cut to $26 at one firm. Should I pay any attention to these predictions, or are these people just making wild guesses?
AvatarElliott Gue
3:11
I don't know about all analysts but the Street analysts I have known and spoken to about this generally use a valuation framework to assess targets for stocks. Sometimes this is based on multiples to earnings, EBITDA or free cash flow. On other occasions it's based on discounted free cash flow. Different analysts have different favorites and I tend to follow price targets from some analysts more closely than others. Generally, I'm still using paying more attention to discounted free cash flow metrics right now (a conservative technique) and I supplement that with relative performance/value metrics and technical considerations (charts) to determine my targets.
AvatarRoger Conrad
3:14
Continuing with Dominion, the change in government in Richmond also should not affect the company's business plans in my view. Mr Youngkin has at times expressed skepticism about wind power and the company earlier this month announced a higher cost estimate for its offshore wind project than initially estimated--though those costs now appear to be locked in. But we also believe the new governor is actually likely to be more favorable to business than the previous one, based on statements so far and people named for key jobs. Bottom line: Both of these risks are overstated and the stock should benefit when there's additional clarity in coming months. I also think the dividend increase promised for next year will be positive.
Rick
3:23
Hello Roger and Elliott:
Own WPC from well before you started C.T. Plan to buy MPW (<23) before year-end as another excellent long-term income holding (always subject to business performance).
Per your recent email, CONE seems worthwhile to own for more of a growth kicker due to the evident growth in data centers plus management's Q3 excellent results.

Is a HOLD (re 12/31 dividend due/good odds on possible higher takeover bid vs. failure of current bid.) But am tempted to buy some now at just under $90. Would like to own another REIT for reasons above and continue to do so long-term. My decision of course but your thoughts?
Thanks!
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