JotCast | 12/28/23 Capitalist Times Live Chat

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12/28/23 Capitalist Times Live Chat

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jack20

3:58

Your thoughts on WDS, short term&long term. Looks to me an excellent buy for long term dividend investors?? Thanks

Roger Conrad

3:58

Hi Jack. I like Woodside Energy, which after merging with BHP's oil and gas unit is now a premier producer of LNG, particularly from Australian reserves that are proximate to the world's largest importers in Asia. The dividend is largely variable, moving up and down with profits that are largely determined by oil and gas prices. That should be a major plus over the next several years as the energy price cycle unfolds. And the NYSE-listed ADRs are an easy way to buy in.

Elliott Gue

3:58

in June 2023 and did not adjust older data -- year-over-year production growth figures you see comparing current data to data from say December 2022 are not accurate, they're apples to oranges. Also, Permian production is growing today because of a surge in activity from private operators early in 2023 as they window dressed to attract takeover offers. That's already fading and will fade further into early 2024.

Jack A

3:58

Hi Elliott:

You have recommended the Brazilian stock market as an investment (EWZ)..... How do you feel about Petrobas (PBR) as a current investment?. Do you feel Brazil's oil output will have a negative impact on the price of oil? If not now, when?

Some pundits are predicting that increased oil production in the United States will result in Saudi Arabia opening up their spigots to bankrupt some of their American competitors, as they did in the past.... Your thoughts?

Thanks

Elliott Gue

3:58

I like PBR. I think they have some interesting production growth prospects and the stock is cheap enough it's pricing in a ton of political risk.

My bullish case for Brazil is based on the fact the country has had some of the tightest monetary policy in the world and is now cutting rates. The Fed's rhetorical "pivot" actually makes further cuts more likely and has helped weaken the US dollar. Meanwhile, the entire Brazilian market is cheap. Generally these are the ingredients for a significant period of outperformance and I like EWZ because it's a broad play on the Brazilian market with exposure to multiple industry groups.

I don't buy the case for a Saudi open the taps response. They've done that twice in history -- 1985/86 and 2014/15. In both cases, they were facing a chronic non-OPEC supply glut and were artificially propping up prices, costing them significant market share.

That's not the case today. US oil production is growing, but at a slow pace. EIA changed the way that calculate oil production

Elliott Gue

3:59

sorry I posted the second half of that answer before I posted the first half.

Guest

4:01

Roger: On page 14 of yesterday's Roundtable, you thought that CHK "will eventually acquire" SWN. Should we readers of your newsletters consider purchasing some of that company? I looked it up and it pays no dividend and is a small cap company. Your thoughts? Barry

Roger Conrad

4:01

Hi Barry. This is one situation where we prefer to own the potential acquirer in the EIA Model Portfolio--mainly because it has many potential drivers for gains next year. But we will have more advice for you on the situation when there's a deal in hand.

Hans

4:01

Elliott : Some time ago you wrote about RRC, what is your opinion now? Thanks

Elliott Gue

4:01

Range is the highest quality producer leveraged to NGLs. We are discussing some potential changes/additions to the model portfolio in the New Year and RRC remains on the short list.

Jerry

4:05

NEP at $30.40 today. Do you recommend at this price?

Roger Conrad

4:05

Hi Jerry. We don't advise anyone pay more than $30 for NEP at this time. As I've said, i think this yieldco will again become a viable funding vehicle for parent NextEra Energy--we've in fact been here before: During the MLP collapse of 2015-16, NEP was also temporarily unable to absorb drop down acquisitions due to difficult capital market conditions. NEE was patient and supported NEP and it was ultimately rewarded with six plus years of successful drop downs that funded NEE growth elsewhere.

That said, we've come a long way in a hurry and I want to see more evidence of unfolding recovery before advising anyone pay a higher price.

Guest

4:05

Roger: Thanks for the clarification on NS.

Roger Conrad

4:05

You're very welcome.

James

4:07

Hi Elliott. Do you follow the NYSE McClellan Summation Index and what are your thoughts on it? Followers of this index have noted that when the index falls below -700 (extreme bearish action in equities) followed by a move above +1000 (persistent broadbase bullish action) within 2 months of a low, it signals the beginning of a long-term bull market in equities (many months to years). The historical evidence of this signal seems convincing and we just got such a signal with the Oct 30 low (-834) followed by a move above +1000 yesterday (+1033 and still climbing).

Elliott Gue

4:07

I have looked at it occasionally. Basically, though, the effect you describe is a "Breadth Thrust." There are a number of such indicators I do track regularly including the Whaley Breath Thrust that triggered around the same time.

Generally, I see a combination of two factors underway that are supportive of equities.

Rotation -- we're seeing some cracks in the Mag 7 names that have supported stocks through 2023 while the rally broadens out to include other sectors. This is what's been signaled by the "breadth thrust" indicators and it's why we boosted exposure to small caps in some of the model portfolios.
A flood of liquidity and stealth easing from the Fed, which I believe could continue to support stocks into 2024.

My longer-term concern is that when a recession does come into view, markets usually fall and right now the market is extremely expensive making it vulnerable to downside risk.

Hans

4:10

Roger: Is it time to bite the bullet on D and look for some ting more profitable and I know you have a rating of 65, but what is your estimated timeline on this happening

Roger Conrad

4:10

Hi Hans. I think bailing out of Dominion now--just before management concludes the now year-plus-long strategic review--would be a mistake. Management provided a great deal of color on what that's ultimately going to look like during the guidance call following the release of Q3 results. Part of that was what was more or less a pledge to maintain the current level of dividend, with a plan to eventually start regular increases in 2025--which should set a bottom for the stock. There are still elements to be revealed--whether or not the utility will have a partner for its Coastal Virginia Offshore Wind project, whether it can lock in more of the cost of that facility and what growth rate it projects. But it looks like at this point the company is turning a corner. And divided government in Virginia--its primary state--means regulation should be steady for the next few years. I would expect to see the stock at a meaningfully higher level next year.

Victor

4:11

Guys, the S&P, the Dow and the Nasdaq will close 24%, 13% and 44% higher than they started this year, respectively. Aren't we in completely overbought territory here?

Elliott Gue

4:11

Yes, we're overbought. For simplicity's sake I watch the 14-day RSI indicator for all of the stocks/ETFs I follow just as a "discipline trigger" for myself. Simply put, if a stock has an RSI over 70 and is up meaningfully since recommendation I use that as a trigger to consider at least taking some money off the proverbial table. Starting a few weeks ago, my RSI overbought alerts started flashing and I have recommended booking some gains in some of the model portfolios I manage. That said, in bull markets markets do tend to get overbought and remain overbought. Corrections are modest and short-lived. Given the tidal wave of liquidity out there I see overbought as a rationale to trim some positions, but not as a rationale to bail out of stocks entirely.

Frank

4:15

Several people have highlighted India as a up and coming growing foreign play. Are there any renewable plays in India worth considering? I do remember seeing several companies in that field in India

Roger Conrad

4:15

Hi Frank. It's still difficult to get direct exposure to Indian energy companies, given long-standing nationalist economic policies. But Hong Kong based CLP Holdings (HK: 2, OTC: CLPHY) has substantial operations in the country as does Brookfield Renewable Partners (NYSE: BEP/BEPC). Both stocks are solid buys at current levels.

Victor

4:16

Hi Elliott, CF recovered somewhat from the lows of this month while volume has been dropping. It seems to me that a top is forming around $80, do you see another decline approaching in the short term?

Elliott Gue

4:16

$80 has acted like a magnet for CF and the stock has traded between roughly $70 and $90 for most of this year. My view is that it's the highest quality fertilizer producer out there and that falling US/European gas prices have acted as a headwind for some time. In my view EU/US natgas prices are closer to a low than a high right now and CF will trade back towards $100 next year.

Guest

4:18

concerning MU. EPS= $1.97 PE =6 Div= 8% They have been in Business snice before the transcontinental railroad. Is ths a buy or am i missing something?

Roger Conrad

4:18

I'm not sure what company you mean. Micron Technology (NSDQ: MU) is certainly an established company. But it has a negligible yield of 0.53% and sells for 47 times expected next 12 months earnings. Is there another company you're thinking of?

Ron

4:18

Would appreciate your current opinion on DVN and MRO.

Elliott Gue

4:18

Generally I think DVN is a decent company but it's been a chronic underperformer and we've had some concerns about their exposure to gas regional pricing differentials. That's why we've preferred other names for the model portfolio. For gas -- we still like CHK/EQT a lot more than DVN.

MRO's African LNG project is interesting. I think we profiled them back in the summer and it's name we still have on a short list of potential new portfolio additions.

Hans

4:25

Elliott: In case of a downturn in the market (recession) what categories do you feel will be affected first.

Elliott Gue

4:25

For energy specifically I actually think the next recession will be OK for the group -- historically inflationary recessions like we saw in the 1970s were pretty bullish for commodities and energy stocks are still cheap. I'd say larger companies with reasonably clean balance sheets would be buys on dips while more speculative names would be more vulnerable (we don't have many in our recommended list) .

Market-wide, if you look at the S&P 500 most of the gains this year are down to a handful of 7 or so large cap tech stocks. Most trade at nosebleed valuations and are pricing in very strong growth over the next few years. Similar to 2000-01 I think these stocks could be very vulnerable in the event of recession if the downturn shatters the illusion of perpetual growth.

Randy D

5:10

Good afternoon, Sinclair recently bought Holly Energy Partners. Do you think I should keep Sinclair, and did this create a taxable event for me? Thank you

Roger Conrad

5:10

Hi Randy. When a C-Corp buys out an MLP, it's pretty much always going to be a taxable event for long-time owners of the MLP. The amount owed will depend on where you bought HEP and how long you owned it. Shares have been roughly flat since June 2021. But if you bought it before the pandemic whatever you owe will likely be offset by a capital loss--since the takeout price was less than half the 2013 high. You should be receiving information about how to file by tax-time 2024.

As for holding HF Sinclair (NYSE: DINO), we prefer Valero Energy in the refiner space.

Dragomir

5:14

Greeting gentlemen: My concern in the months and years ahead is how "gracefully" the feds will be able to service the national debt. My worries are it will be ugly. Any thoughts? Thanks.

Roger Conrad

5:14

Hi Dragomir. That's a very good question. The answer so far seems to be to just kick that can as far down the road as possible. And in any case, consensus builders in the current political party-first Congress appear to be relatively scarce, with little indication either party is going to win a decisive (or even governing) majority in next year's election. Obviously, the Fed moving from rate increases to cuts will help with the cost of borrowing this year. But lit's hard to see how you avoid some combination of tax increases and spending cuts--which the sooner they take place the less ugly they're likely to be. This is one reason we believe inflation is not dead--the other larger one being lack of investment.

Victor

5:15

Elliott, CCJ is pulling back and trading around its 50 day MA. Would this be a good entry point?

Roger Conrad

5:15

Our highest recommended entry point for CCJ is still 34. Above that, the stock is effectively a hold. We like it long term. But it's had a very big move.

richard Warren

5:19

Any recommendations on CIVI ZND MORE NUCLEAR ENERGY RELATED STOCKS-LEU, LTHM?

Roger Conrad

5:19

Hi Richard. One you may not have thought of is Brookfield Renewable Partners (NYSE: BEP/BEPC), which along with partner Cameco closed the acquisition of Westinghouse this year. The partners have pretty much even stakes in the company (BEP has 51%). And their investment has both unique relationships globally with nuclear generators and a line of small scale reactors that should hit the market the next few years. BEP and its C-Corp shares alternative traded as BEPC yield 5% plus and are growing dividends 5-8% yearly.

Victor

5:28

Elliott, According to an article on oilprice.com
U.S. crude oil production hit a new monthly record of 13.236 million bpd in September, according to the latest data from the U.S. Energy Information Administration (EIA).
The U.S. shale patch is now looking to do more with less as it seeks capital and operational efficiency to prove to shareholders that it has turned the page from growth at all costs to measured growth accompanied by higher returns to investors. Is supply catching up with demand?

Roger Conrad

5:28

Hi Victor. As Elliott has pointed out--most recently during this chat as well as the Roundtable we sent as an Alert yesterday--we think the evidence speaks strongly otherwise. Yes, US shale is learning to do more with less. But that's the unmistakable sign of capital discipline--and it's 180 degrees as a strategy from what we saw at the peak of the last cycle in 2013-14, when companies were spending to grow. The big ramp up of M&A we're seeing--both in production and midstream--is another clear sign that scale rather than new exploration is seen as the way to growth. And with fewer companies mattering, that's also increasing shale discipline and thereby ability to respond to shifting demand.

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