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12/30/24 Capitalist Times Live Chat

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Elliott Gue

2:36

and recommend in the portfolios like WMT, BX, ORCL ... as of now they're all seeing what look like normal corrections following major rallies earlier this year. (Other groups like natural gas and EXE are actually starting to break out). From a fundamental perspective, I have my concerns about the economy and I'm not convinced it's as strong as some seem to believe it to be; however, typically late in a bull market or in the early stages of a major decline, you'll see more concreate evidence or indicators that suggest a recession is imminent. I don't see that yet.

Guest

2:37

Roger: Regarding your recommended REITS WPC, ARE and PLD. Does each REIT continue to show strong earnings? If so, why do they continue to get beat up? WPD is below your dream price as is ARE (which is substantially below your Dream Price). And PLD is getting there! Your thoughts on holding them or adding to their positions "incrementally" as you so wisely have always advocated? Thanks. Barry

Roger Conrad

2:37

All three of these companies met and affirmed guidance when they reported Q3 results in November. That's really the last time any of them reported significant news regarding health of their operations. ARE did announce a dividend increase and stock buyback. WPC also increased dividends for the fourth consecutive quarter and PLD appears headed for an other sizable dividend boost in February--which it will probably hint at when releasing Q4 results January 21.

i think all three are getting hit by weakness in the REIT sector generally--which accelerated after Dec 18 when the Fed forecast just 2 rate cuts last year. And there's tax loss selling as well. But I think this is a time to accumulate all three--not overload but these are three very high quality companies and look for much stronger performance in 2025 from this low point.

Guest

2:46

Roger: Please give us your thoughts about holding on to or adding to your CUI+ portfolio stocks LYB and BHP? Can you explain to us readers why each stock is getting hammered? Each is currently below its Dream Price. Thanks. Barry

Roger Conrad

2:46

I talked a good bit about Lyondell earlier in the chat. The big issue there is refining and chemicals margins industry wide are expected to be weak well into 2025--it's not specific to LYB. Industry leader Valero Energy (NYSE: VLO) has forecast a shortage of global capacity by mid-2025 and better margins. The bear case is that won't happen if the global economy weakens next year. Macro economic worries are also affecting the share price of super miner BHP--whose dividends are tied to earnings that are heavily affected by prices of basic commodities, which in turn are affected by the health of the Chinese economy. I think there's also been tax loss selling of both stocks heading into the end of 2024.

Basic underlying business health of these companies, however, is still quite solid, And I expect a stronger 2025 from both stocks.

Hans

2:46

Elliott: What is your opinion on DVN and PBR, Thanks

Elliott Gue

2:46

I've felt that DVN was getting a handle on some of its operational issues and ultimately I think it's a decent company with good assets. That said, we've never quite been able to add it to the Energy & Income Advisor model portfolio as a buy recommendation because we continue to like other names more. For example, if you want a multi-basin oil and gas producer, I think EOG Resources (NYSE: EOG) and OVINITIV (OVV) make more sense and have outperformed DVN of late. In my view 2025 will be the year of natural gas and I think oil is near the low end of its range and, absent imminent recession, I think you see $90/bbl at some point in '25. That scenario, should it play out, is likely to push DVN higher. However, over the years, I've tended to find that stocks which outperform during the sell-offs often become the leaders in the next cyclical upturn -- unfortunately that's not DVN. PBR -- my main concern there remains overall sentiment towards Brazil -- they have great assets, but the government's relationship with

Elliott Gue

2:46

PBR and the poor performance of the Brazilian stock market give me pause.

Alex M.

2:51

Hi Roger. What are your thoughts on CVS after the most recent price action? And it seems like water utilities are finally starting to trade at more reasonable valuations (SJW, ARTNA, WTRG, YORW). Are these looking attractive to you? Thanks.

Roger Conrad

2:51

Hi Alex. I think CVS' most recent selloff is basically due to overblown concerns about politics' impact on the pharmacy business. But the big issues for the company are getting costs under control for its Medicare plans, reducing debt and proving an integrated model of pharmacy/insurance/healthcare can work. That's going to have to be proven in results, but I think it will and the stock is very cheap.

The water utilities have gotten cheaper. I think Essential Utilities has the most potential upside drivers for next year and it remains my favorite. But the cheaper the others get, the more likely we'll see another merger--and the more tempted I am to add one to the CUI Portfolios. Stay tuned.

JT

2:54

Hi, I have positions in VLO and PBF and they have been destroyed. How much further is there to go to the downside? Is it reflective of their poor businesses or is there a stock market specific reason they are being crushed?

Elliott Gue

2:54

The refiners have been hit hard since April. Underperformance from the group has been all about weak refining margins -- crack spreads -- especially in the Asian market. Weakness in crack spreads, in turn, is likely a function of market concerns about weak demand, particularly from China. My view has been, and remains, that concerns about Asian -- and global -- oil demand is overdone. China is, albeit haltingly, taking steps to stimulate economic growth and my view is that at some point in Q1 205 they're likely to "panic" and announce an even more comprehensive stimulus package. At some point, just trying to muddle along as unemployment rises, etc. just isn't possible. Already, we're seeing signs that demand may be picking up and in India its been red-hot. In the US, demand has actually been robust and I think the market is woefully undervaluing the scarcity value of high-quality refining assets such as those owned by VLO. US refining capacity has been shrinking yet demand for seaborne refined products

Elliott Gue

2:54

continues to grow as markets like the EU have closed so much capacity they can no longer meet their domestic needs. It's been a rough ride no doubt but my view is that sentiment towards the group is near a low point and we're already seeing signs of improvement in market indicators.

Bonnie Beth

2:59

Hi Roger! Greetings and Happy New Year to you and your family! For the first time, I purchased a stock that is not in your utility portfolio, but it is in your Utility Report Card as a buy. After some independent research I bought EPD and it was below your buy price. I also bought some REITS that are not on your REIT list but they do appear in your REIT universe: VICI, PK, CCI and AHH. What are your insights on EPD and the REITS I bought? I appreciate this year-end chat, and thank you!

Roger Conrad

2:59

Hi Bonnie. I think Crown Castle has gotten cheap but the company itself is still trying to get back on track--with T-Mobile, AT&T and Verizon looking to cut their infrastructure costs, eliminating overlapping assets and reducing CAPEX, and odds of DISH/Echostar becoming a customer as a viable fourth national telecom looking pretty slim. I prefer the lower yielding American Tower (NYSE: AMT), which also has a thriving data center business and is diversified internationally. I think Vici Properties is a good REIT, though I've preferred its smaller rival GLPI as a potential takeover target. Armada Hofler is a high quaility name with a big yield that I've rated buy in REIT Sheet. All three of those REITs are covered in my broader REIT Sheet coverage universe--and you can read my comments in the quarterly table. Park Hotels is a name I intend to add to coverage.

Alex M.

3:06

I know they are probably outside of your normal coverage universe, but do you have any thoughts on the recent sell-off in consumer packaged goods brands? For instance, MDLZ, PEP, HSY, and other peers. Thanks.

Roger Conrad

3:06

These stocks are in roughly the same sector as the company we do hold in CUI Plus/CT Income--Kraft Heinz (NYSE: KHC). It's also in the red this year, and by roughly the same amount as the others. These companies have been challenged by volatile agricultural commodity prices in recent years--and every earnings report has been a test of how they're dealing with inflation pressure on margins as well as sales, as customers look to cut costs.

The recent downside is in my view due to a combination of tax loss selling and politics--concerns their business model will be undermined by increased government regulation to produce healthier food. My view is these companies are likely going to have to make more adjustments. But KHC at 10X forward earnings is more than priced for it. And I intend to stick with it heading into 2025--earnings are expected Feb 19.

Victor

3:06

Hello guys and Happy New Year to all of you! Thank you for the information provided via this chat.
Elliott,
The US Dollar has strengthened significantly. As a result of this the Euro is at almost parity with the Dollar. Do you expect this trend to continue into 2025?

Elliott Gue

3:06

Happy New Year! Strength in the dollar is largely a function of the view that the US economy is strong relative to the EU and other major developed economies; the corollary to that is the view that US interest rates will remain high relative to EU and other major monetary blocs. Most recently, if you look at indicators like the Economic Surprise Indices, you'll see that the global economy seemed to weaken between the spring and Aug/September (that's when the Fed cut 50 bps) and then the data started to improve just before the Fed cut; US data hover has been much stronger than in the EU. SO, that's driven this latest bout of dollar bullishness. More broadly, however, despite all the talk about higher for longer yields and a "no landing" scenario for the US...even American exceptionalism, the 10-Year Treasury yield has been essentially rangebound for two years now. We've had several mini -cycles in yields, driven by shifting market narratives on high-frequency economic data. So, we had a big jump in yields into

Elliott Gue

3:06

the fall of 2023 on the view the US economy was overheating, a big decline in yields as the data weakened into early 2024, another rally ion yields as the data strengthened into April...and so on. My view is that yields are near the top of their range and sentiment towards the US economy is basically as bright as it's going to get -- we're more likely to see some weakening in the data, a decline in yields and the dollar than we are to see a major break higher. I have to admit that when I saw that Economist Cover "The Envy of the World" featuring a roll of $100 bills blasting off like a rocket ship, I started to think maybe the bullish sentiment towards the US economy and the US dollar is getting close to a peak.

Victor

3:14

Hi Elliott, what is the latest on the HES acquisition and what would be the reason for the stock price decline since the announcement?

Elliott Gue

3:14

I think HES is generally trading like CVX now so the sell-off there is a result of the corresponding selloff in CVX. The FTC cleared the deal with some requirements -- such as that John Hess can't be on the new company's board. That's not a deal-breaker -- further, I suspect the Trump FTC will be far, far more friendly toward industry consolidation, however, I really don't know if they can lift that requirement or not. That leaves only XOM's challenge to the deal in place which is supposed to be decided at some point in 2025. In my view, if the HES-CVX deal ultimately falls through HES will still be valuable to a different buyer because of their crown jewel Guyana asset. XOM might well buy it or, perhaps, HES will decide to stay independent and just push trough to enjoy the cash flows from this deal, which are now ramping up.

Don R

3:15

Hi Guys, Happy New Year and thank you for doing these monthly chats. I'm looking for guidance on entry on FLNC and also thoughts on SLB and BP. Thank you

Roger Conrad

3:15

Hi Don. I recently upgraded Fluence Energy to a buy in Conrad's Utility Investor at a price of 20 or lower. The battery storage company's Q3 results indicated it's reached critical scale to be profitable. And equally important, margins have increased along with sales, so this is very much a scalable business. Eventually, orders are likely to be somewhat cyclical. But at this point demand from power grids is high and costs are dropping. So sales should remain strong. And the company also now has a 100% made in the USA offering to protect it from tariff walls.

We see this as a good time to buy SLB--yes the stock is down this year as are most services companies. And these companies are typically last to the party in long-term upcycles. But business is solid as are the balance sheet and dividend. And by the end of the cycle, this stock could be 3X where it is now.

BP is not going anywhere. But we consider it the weakest of the super majors. ExxonMobil, Chevron and TotalEnergies are by far better positioned.

Hans

3:23

Roger: NPIFF, being a worldwide power producer why is this stock down 30% this year. Thanks

Roger Conrad

3:23

A third of those losses are due to the weakness in the Canadian dollar. Renewable energy stocks have also been generally weak this year in anticipation of the incoming Trump Administration--though Northland has limited operations here it does have onshore wind in New York. And Canadian energy stocks in general have been soft.

There also appears to be some uncertainty about the level of profits German offshore wind farms will generate in Q4 in light of that country's energy dysfunction. But at least as of Q3 results, Northland's investment plan was on track--including major offshore wind projects. And free cash flow after CAPEX was still sufficient to cover dividends. Again, I'm not a fan of really loading up on any one stock. But Northland looks pretty cheap right now for patient, more risk tolerant investors.

Dudley

3:26

Happy New Year Roger & Elliott,

Elliott Gue

3:26

Happy New Year to you as well!

Bonnie Beth

3:30

Hi Roger, I have another question: An analyst from a major institution is very bullish for 2025 for the following: AR (Antero Resources) which up a lot today. EQT Corp is up a lot also. And WMB Equity - Williams Corp. Do you have additional insights? Thank you so much! Enjoy the New Year!

Roger Conrad

3:30

Thanks Bonnie. Well, he or she appears to be making a call that Appalachian natural gas producers are headed for a breakout year--presumably because natural gas prices are rising to a critical threshold. We wouldn't disagree. As you know, EQT Corp is an EIA Model Portfolio stock--and it's a higher quality company than the much smaller and more leveraged Antero--though it's conceivable EQT could buy it at some point.

I'm very bullish on midstream the next few years. But in my view, the MLPs are right now the better buys by far, especially for individual investors--rather than the C-Corps like Williams, which is up over 60% in 2024. Kinder Morgan is up even more. But MPLX is up over 40% and still yields over 8%--versus just 3.5% for WMB.

DRG

3:33

Hi Roger/Elliot, Wishing you a blessed new year. What's your take on midstream company CTRA which is being recommended by many on Wall St.? Don't believe it is part of the EIA-covered universe. Thx.

Roger Conrad

3:33

We do cover Coterra Energy in our E&P and Services companies coverage universe--which you can view on the Energy and Income Advisor website under the "Portfolios" tab. It's not in the portfolio mainly because we see better values in the energy space--where cost control matters a lot more than output. But the Permian acquisition announced last month should be accretive to earnings. And ultimately, this may be a takeover target as the region continues to consolidate.

Elliott Gue

3:36

in sentiment toward oil. In my view, what's amazing is that pretty much all of the fundamental "arguments" or narratives advanced by the bears over the last 6 months have fallen by the wayside. OPEC extended their cuts multiple times, there's no Saudi/Russia desire for a price war and, most importantly of all, US shale production is not growing -- at best it's flat and probably slowing. The latter is due to a combination of production discipline, industry consolidation and rising gas-to-oil well production ratios. I believe we're likely to see the oil market physically much, much tighter into the first half of this coming year than the market expects. A continuation n of the shale plateau should help. Sentiment to oil has been very bearish and when we see the tigh supply-demand balances I think you'll see significant upside in crude and easing concerns about the oilfield services spending cycle. So I think we'll see numerous bullish catalysts for SLB between now and the middle of 2025. That's my best

3:38

(hopefully educated) guess for a time frame. In the meantime, my view is that 2025 will be the year of natrual gas with 4+ bcf/day of US LNG capacity coming on between Q4 2024 and Q1 2026. All the services names will benefit to an extent but of the majors BKR is the most leveraged to LNG/Gas.

Dudley

3:38

Just picked up SLB. Believe sell off is overdone for this industry leader. Your thoughts please on time frame required before it moves up in price. Thanks Dudley

Elliott Gue

3:38

We agree with you -- SLB is the established leader in oil services, especially outside North America land. They've long been known for their leadership in oilfield technologies, services aimed at exploration and their ability to tackle more complex reservoirs. The stock had a (very) rough 2024 due, in part, to the view that the duration of the international oil services cycle -- particularly in Middle East/Saudi -- is in question as Saudi decided to push back plans to raise their spare capacity. Mor important than that, in my view, is simply the flatlined/weak oil price we saw through much of 2024 and the ongoing debate/concerns about the potential for an oversupply into early 2025 or a loss of OPEC production discipline. Of course, if the oil market is entering a major oversupply stage then you're likely to see a decline in spending on exploration and development -- capital spending from companies like XOM and CVX = SLB's revenue. With that in mind, my view is that the turn for SLB's stock will match a shift

Elliott Gue

3:39

Sorry -- I think I posted the second half of that answer before the first

harry cebron

3:44

what are you thoughts on New Fortress

Roger Conrad

3:44

Hi Harry. I think New Fortress may have turned the corner this year after delivering first LNG to its European customers from a facility in Mexico--after winning US government approval to accept natural gas from a US-originating pipeline. The company also appears to be getting a handle on its balance sheet, disposing of a non-core Miami LNG business serving cruise ship islands. And the refinancing of various credit lines with a $2.7 bil bond issue to mature in 2029 is on track. I think it's unlikely they'll pay a dividend anytime soon. But the stock rates a hold at this point.

Frank

3:51

Natural gas stocks are moving nicely today. What are your thoughts on the gas price going into the new year?

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