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12/30/24 Capitalist Times Live Chat

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Roger Conrad

4:57

I think Enbridge Inc is a candidate to buy South Bow at some point, with or without a revival of the Keystone XL pipeline expansion but definitely at a higher price with it. ENB has been moving further toward oil and liquids on the midstream side--even as its acquired Dominion's natural gas utilities.

The rule is if a C-Corp acquires an MLP, it's always a taxable event, whether the offer is in stock or cash--though the parties may take steps to limit the hit. All cash offers will create taxable events, whether they involve C-Corps or MLPs. And C-Corps acquiring C-Corps for stock are not taxable. Neither are MLPs acquiring either other MLPs or C-Corps.

If Chevron acquires Hess Corp and then buys back the rest of Hess Midstream--which I think is highly likely--it should not be a taxable event if the offer is in stock as HESM is not an MLP. If it's cash, it will be taxed.

Susan P.

5:02

Both Black Stone Minerals and Chord Energy, to avoid a k-1, have been recommended. BSM has outperformed Chord over the three year comparative period. Do you have any experience/knowledge on BSM's k-1 that makes it especially cumbersome? Elliot's view of nat gas pricing has me very interested in BSM. Thanks much.

Roger Conrad

5:02

Yes, Elliott's view on natural gas pricing is a big reason I've recommended Black Stone for more aggressive income seekers. The other big one is it has no debt and funds its limited CAPEX--mainly acquisitions--internally. And I expect the dividend to be increased many times the next few years--as output its lands grows and realized selling prices increase.

Of the two companies, I prefer Black Stone. And in my view, the fact it issues a K-1 should not keep investors from it. But Chord is a good alternative for our readers who avoid K-1s in all cases.

Kerry T

5:07

Hi Roger:

If you haven't already been asked ... What's going on with LYB?

Roger Conrad

5:07

Hi Kerry. I addressed LyondellBassell in several pre-chat questions, which I posted at the beginning of the chat. The company is building businesses with non-cyclical cash flows, such as plastics recycling. But the bulk of the revenue is in cyclical chemicals and refining. And currently margins in these businesses are contracting. There are indications we'll actually see shortages of capacity globally by mid-2025 that have been pointed out by sector leader Valero Energy. The worry seems to be that the global economy will weaken instead and prolong the pressure on margins. And at some point, LYB and others may have to trim dividends to preserve cash flow. LYB has historically raised dividends in May. And if margins are weak enough, they may elect to freeze the payout. But at 10.6X forward earnings and a yield of 7% plus, it's certainly pricing in a lot of bad news. And keep in mind this stock was selling well above our highest recommended entry point for some time. We're staying with it going into 2025.

James G

5:16

This email is for the Chat Mailbag........

MDU is the gift that keeps on giving.....MDU itself hanging around $20, spinoff KNF is sitting around $102.3 and recent spin ECG sitting around $67.8. as of 12/30/24. I sold KNF around $70-wish I hadn't-but at least it taught me a lesson-sometimes capital appreciation can more than make up for lack of a divvy, and KNF is a good example. I've taken a different approach with ECG. In addition to my spin shares, I added a tranche of ECG with my KNF proceeds right out of the spin gate and ECG has proceeded to rise at a faster % clip than even KNF. I moved it over to my Industrials port and intend to retain. Again, credit goes to Roger for unearthing not one, not two but three gems.
I think you may know my query-are there any other utes in your coverage universe that may have nuts and bolts that might do a bit better if separated from their mother ship? I realize this query may spawn some conjecture, but my two largest % gains in the market in the 2000s have come from the

Roger Conrad

5:16

Hi James. It's hard to believe now that pre-spin MDU had a hard time breaking out of the 20s for many years, now that the component pieces are worth several times that. You appear to have managed the gains well--I think KNF is maybe benefitting from the fact it's a US-based source of resources and therefore is inside the tariff walls. But it's also come a long way in a hurry and it's probably not a bad idea for everyone to take some off the table if you've been holding since the spin. We might not be there yet for Everus and MDU itself is solid and cheap.

In contrast to MDU, Southwest Gas (NYSE: SWX) elected to hold onto 80% of its Centuri (CTRI) spinoff--with the idea of selling it off later to cut debt. I still think that will happen. But the chance of an MDU-style windfall is probably out. I think Hawaiian Electric spin of its banking unit would be a possibility, were the utility not needing to finance its wildfire settlement.

Roger Conrad

5:19

That's really about it as far as US utilities owning non-utility and businesses they can spin off. There are, however, other possibilities that could make sense. Public Service Enterprise Group (NYSE: PEG), for example, could get a big lift from spinning out its unregulated nuclear power operations in New Jersey--in fact, the share price already at least partly reflects the possibility. Bottom line--this is a great question and definitely worthy of more follow-up.

Mack P

5:24

Sometime in January we are expecting to hear something from NEP regarding the future of the partnership. Do you know when we might expect a statement to come out? And are there any rumors about what they might say? Thanks, and Happy New Year.

Roger Conrad

5:24

Hi Mack. Happy New Year to you and yours as well!

My guess is we'll hear results from the strategic review about a week before NextEra Energy (NYSE: NEE) and NextEra Energy Partners (NYSE: NEP) release Q4 results and update guidance, which is expected on Friday January 24. That would follow the pattern of previous announcements concerning NEP, which preceded results by at least several days. And doing so would give management the opportunity to focus on the rest of the business during the earnings call.

Again, this is just an educated guess based on what they've done in the past. I'm no long distance mind reader. And I generally distrust rumors, especially when potentially billions of dollars in stock value rest on the outcomes.

RON

5:28

The shares of AES continue to fall with tax loss selling helping with that. The shares seem cheap with a good dividend. What are your thoughts as a purchase at this point?

Roger Conrad

5:28

Hi Ron. I think AES is very cheap--and for disclosure purposes I've bought some myself around the current price. I think a lot of what we saw in 2024 was due to (1)concern about potentially losing IRA tax credits for ongoing projects and (2)getting dropped from the DJUA in favor of Vistra Corp--typical Dow Jones action dropping a losing stock that almost certainly won't end well for ETF investors. But I view the dividend increase this month as positive and look for them to report solid Q4 results and guidance for 2025--probably sometime in February.

Roger Conrad

5:29

BTW, even if IRA is repealed and not replaced--which I think is highly unlikely next year--its won't affect AES' current projects. And this company is very well connected feeding data center demand as well, which means orders are likely to keep coming.

Victor

5:37

Gents, What is your opinion on COP and should the acquisition of MRO reverse the current downtrend?

Roger Conrad

5:37

Business is good for ConocoPhillips--and adding the Marathon assets is a big plus for cash flow. And we should see positive Q4 numbers and guidance in February. But energy stocks are going to follow oil prices in the near term. We think the selling is overdone and there's value. But it may take some patience to wait out the weakness.

Susan P

5:43

My gratitude only increases, the more I read both of your efforts...Would love your thoughts on two somewhat unique energy names: Suburban Propane has dropped to levels close to Roger's buy price of 16 (trading around 17 in the last hour of 2024) after its stellar run up; meanwhile, Alliance Resource Partners continues its climb higher (up over 25% in 2024). Could propane are get more attention as an export fuel? Re ARLP, its CEO has been a big backer of the President-elect, who has mentioned "clean coal" (a technology that seems like it could be improved). Is there further upside for ARLP? Is nat gas as a fuel too competitive for SPH to revive its stock price meaningfully. Thanks again and healthy 2025.

Roger Conrad

5:43

Alliance Resource Partners has been solid winner for us this year in the Energy and Income Advisor High Yield Energy List. We have not, however, shifted our highest recommended entry point up because dividend coverage remains thin--that was OK when the stock was pricing in a dividend cut but there's less than a cushion now. I'm not ready to sell yet. But as I said earlier in the chat, a lot of these so-called "Trump trades" have gone a long way in one direction, which makes us cautious.

As for Suburban Propane, shares have weakened a lot since the Fed forecast just 2 rate cuts next year. That's a reaction we've seen in many dividend stocks and I don't see it as permanent. Weather always plays a big role in cash flow generation--and we'll see how they did in FYQ1 in early Feb. But I don't see pressure on the dividend at this time--though I would be patient and wait on the buy price being reached.

Victor

5:43

Elliott, what is your outlook for 2025 on oil prices and how this will impact the stock prices of oil producers?

Elliott Gue

5:43

Sentiment toward oil is very bearish. The main bearish narrative has been that there will be a major oversupply in the first half of 2025 that will extend through the year. Some of that is the view that demand will be weak, but mostly it's a view that non-OPEC supply will grow and, coupled with a potential return of OPEC volumes, that sill swell supply relative to demand. Futures market positioning in oil is very weak. Right now, there is no glut of oil --demand still higher than supply and inventories drawing. In my view there won't be much of a glut -- more likely remains tight -- into H1 2025 because non-OPEC supply growth has been much lower than expected and I expect further evidence of the shale plateau to emerge in Q1 - Q2 2024 with oil around $70/bbl. Ultimately, I'd expect to see a rapid shift in market sentiment in oil and for a significant rally. The only real fly in the ointment would be a recession that negatively impacts oil demand -- I still don't see that being an imminent issue.

Jay

5:48

Roger or Elliott, I know its not your focus, but can you comment on your view of pharma / medical icompanies under Trump and for the next year in particular.

Roger Conrad

5:48

Hi Jay. i know there's been a lot of noise around this issue. And the way many of these stocks have acted, it's clear investors are selling as those the sword of Damocles is about to come down on the industry.

I would point out that up until recently, investors couldn't seem to get enough of big pharma. And we were able in CUI Plus/CT Income to book big gains in Abbvie and Merck several times in 2024. But at this point, I think the idea the new administration is going to wreck this industry is pretty far fetched. Like the pharmacies, these companies may have to make some adjustments. But I intend to stick with our Abbvie.

Guest

5:51

Roger, ARLP has had a nice run in 2024…..Is it worth hanging onto for 2025 or better to use the proceeds elsewhere? Also, any significant company news on BSM?

Roger Conrad

5:51

No real news on Black Stone--though the strengthening in benchmark natural gas prices is all else equal a strong positive. The next dividend declaration should be in late January. i think they'll probably stay at 37.5 cents--but wouldn't be surprised with guidance for an increase if gas prices stay strong.

I answered extensively on ARLP a bit earlier in that chat. Bottom line is I'm holding for now but not buying.

Guest

5:54

Roger, when do you think the pain will stop for BCE? It has been a rough 2024.

Roger Conrad

5:54

I think we'll see some firming up when tax loss selling has run its course--though keep in mind that this stock has seen about 10% downside from the collapse in the Canadian dollar in recent weeks. The important thing for BCE is to post solid earnings and guidance in early February. if they can back the dividend and balance sheet and the US fiber acquisition is on track, then I think it's just a matter of time before the stock recovers. And we could see a pretty fast recovery if Conservatives are able to win the election that must be held next year.

Jim

5:57

Sorry if discussed already but what are ramifications of BEPC merger and we are to receive exchange shares?

Roger Conrad

5:57

There will be no impact on existing shares for ongoing M&A activity at Brookfield Renewable--either the MLP shares (BEP) or the C-Corp shares (BEPC). The company is, however, buying back 5% of its shares under a new one-year plan.

Guest

5:58

Hi Roger: I asked earlier about CQP, and you mistakenly thought I was asking about CNQ. Please advise. Thanks. Barry

Roger Conrad

5:58

Hi Barry. Another reader pointed out my mistake--and I answered the Cheniere question at length. Short answer is its a buy up to 60.

Jim

5:58

As always discussions are most informative.

Roger Conrad

5:58

Thank you Jim. We appreciate it.

Guest

6:01

What is your current view on MPLx

Roger Conrad

6:01

We've raised out highest recommended entry point for MPLX to 50, following the bigger than expected 12.5% dividend increase. Q4 earnings and guidance are due in February.

Guest

6:03

What is your opinion on MPLX? Shall I take some partial profits? Happy New Year!

Roger Conrad

6:03

MPLX has been a big winner for us this year--with a total return of 40% year to date with one day left to go in 2024. But it still yields over 8%--more than twice the midstream C-Corps like WMB. It's also selling for barely half what it did at the peak of the previous energy upcycle--business is good and we think it's got a long way to run yet.

Guest

6:09

Hi Roger: Any new thoughts by you or any new information out there about NEP and their decision coming due in Jan 2025? Thanks to you, Elliott and Sherry for helping all of us small investors!!!!

Roger Conrad

6:09

Thank you for those kind words! And a very Happy New Year to you!

There's nothing new to report on NextEra Energy Partners at this time--my view is the strategic review results will be announced a few days prior to the Q4 numbers and guidance call expected Jan 24, And I think we'll see a dividend cut of 50-60% along with a plan by NEE to increase ownership in return for paying off CEPFs. Koyfin reports 2 strong buys among Wall Street analysts, 2 buys, 12 holds, 1 sell and 2 strong sells--basically a holding pattern. Short interest is also elevated at 4.1%--so what does come out could move the stock a lot. I think the worst case is priced in and other than very conservative investors we want to stick in to see the result.

Guest

6:14

Roger: When is Shell going to be profitable? I looked at Shell's fundamentals. Are they any good? One lay investor commented that the only thing of concern was that Shell was paying out about 55% of their profits to cover the dividend. She liked oil companies that could cover their dividend at less than 70% of earnings, so this level did not concern her at the moment. However, does this bear watching? Thanks. Barry

Roger Conrad

6:14

I think Shell's big problem--and BP's--is they haven't pursued a consistent strategy the past few years. First, they went all in on renewable energy and slashed oil and gas development. Now they want to bail out of renewables and refocus on oil and gas. They've cut a lot of debt. But considering how much free cash flow they've made since the pandemic, they ought to be in a lot better shape. They've wasted a lot of capital. And while they're not going anywhere as companies, they're well behind the companies that stuck to consistent strategy like CVX, XOM and TTE.

I wouldn't get too concerned about the payout ratio--which for any oil and gas producer is going to swing wildly from quarter to quarter. And I don't think either SHEL or BP will cut dividends this year. But CVX, XOM and TTE are just better managed. And that's where any investment in super majors should go in our view.

Roger Conrad

6:17

Well that looks like all we have in the queue, as well as emails received previous to the chat. We'd like to thank all of you who participated today--and everyone reading this transcript--for your loyalty to CT this year. And we look forward to serving your needs in 2025--which as of East Coast time is less than 30 hours away!

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