JotCast | 2/11/20 Conrad's Utility Investor Live Chat | 2/11/2021

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2/11/20 Conrad's Utility Investor Live Chat

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Roger Conrad

3:47

If you're really interested in energy stocks, I would recommend checking out Energy and Income Advisor. Give Sherry a call at 1-877-302-0749 anytime from Monday-Friday, 9-5 ET and she'll set you up!

Gary M.

3:51

Question is why you are holding a price target of $125 on Chevron given that other major oils are pushing into renewable energy areas but Chevron doesn't seem to be doing so. Isn't CVX missing something here?

Roger Conrad

3:51

As I answered to the previous question in the chat, I do like Total SA's push into renewable energy. There are three reasons for that. First, it's building a source of revenue that's not affected by oil and gas prices, which over time will provide the kind of ballast to earnings and the balance sheet that refining/distribution/chemicals have in normal cycles. Second, the position it's building is potentially as dominant as what it's enjoyed in oil and gas over the years, which is a testament to its extremely strong balance sheet and reach but also having its head in the renewable energy game long before it was popular. And third, it's investing in a way that's focused on returns, not just getting points with ESG--environmental, social, governance rating systems.

Roger Conrad

3:53

In my view, Total is the only super major pushing into renewables that can make that claim. It's true BP, Eni SpA and Royal Dutch Shell are making aggressive moves. But as Q4 results showed, none of them have yet had any traction with their efforts. In fact, all they've done so far is add to leverage.

3:55

So where does Chevron fit in and why do I have it a buy up to 125--and why continue to hold it as a Top 10 DRIP. All very good questions. And as you've pointed out, while the company is making some aggressive moves to use renewable energy at its sites--for example, it's growing venture with Conservative Holding Algonquin Power & Utilities--it has not made the magnitude of investment other super majors have.

3:57

First, Chevron has held the $120-$125 price level when oil prices have been north of $50. My view is it will regain that level when investors get more comfortable that $50 plus is not a temporary state of affairs but instead a level likely to be exceeded as the energy price cycle continues.

4:01

Second, Chevron has recently been making investments that should produce considerable returns over the next decade. That starts with the acquisition of Noble Energy last year, which not only boosted proven reserves by upwards of 20% but established it as a leading natural gas producer in the Eastern Mediterranean Sea--serving gas starved Israel and Egypt. The company also announced its buying in the publicly traded portion of Noble Midstream Partners, consolidating its infrastructure. Again, that's not as flashy as investing in an offshore windfarm. But it's a business Chevron understands well and will be able to boost earnings from.

4:07

Again, the point is here you want to buy and own well managed companies-. And Chevron is definitely one of them.

Dennis

4:07

Hi Roger,

Roger Conrad

4:07

Hi Dennis. Hope all is well.

Dennis Z

4:14

Hello Roger.

I’m sitting on some big winners in CWEN, AY and AES. I would like to trim those back and invest in the stocks you think will provide s similar ride. What are your top 3 recommendations for big growth under the new administration’s policies?

Thanks

Roger Conrad

4:14

The key for trimming back is going to be to observe those "Consider Taking Profits" numbers I post in every issue in the Portfolio section. Just because a stock has scored a big return recently doesn't necessarily mean it's a good time to sell--but it will be if it's moved far enough above our highest recommended entry point. I set these based on a projected return of 10% for companies that draw Quality Grades of A or better, and progressively higher for lower rated fare. Return is defined as yield plus sustainable dividend growth rate.

Looking at these three, Atlantica has been above its taking partial profits number most recently but is back below that now. Both it and AES are above recommended entry points, which makes them holds for now. Even after a 37% gain over the last 12 months, AES still sells for just 18.6X expected next 12 months earnings--compared to 33.5X for NextEra Energy. Clearway, meanwhile, is still slightly below its buy target of 33.

Roger Conrad

4:16

My view on this trio could of course change when they announce earnings--Feb 25 for AES, Feb 26 Atlantica (expected) and Mar 1 for Clearway. But at this point, I don't consider any of them particularly overvalued. And as for Biden administration policies, to the extent they're affected by them it will be extremely positive--though keep in mind that states have far more sway in the power sector than the federal government.

4:19

I would also encourage everyone to check out the renewable energy companies I highlighted in the February feature article. The US offshore wind companies really are not getting their due at this point. And Biden's goal of 42 gigawatts by 2030 is going to require speeding up the permitting for their projects by a lot. I also really like the prospects of RNG (renewable natural gas) and hydrogen to cut CO2 emissions from gas distribution and pipelines--putting the kibosh of worries about stranded costs that I think are currently depressing share prices.

4:21

I will have a lot more renewable energy companies to recommend in coming months--the right ones purchased at the right prices are really a cornerstone for conservative portfolios now.

Jim N.

4:29

What is the long term impact to T & VZ when the Bezo & Musk internet satellite network is in place?

Roger Conrad

4:29

The short answer is far less than the hype. The main reason satellite TV franchises are losing so many customers--as AT&T's DirecTV is by the way--is they can't complete on quality of connection with fiber broadband or 4G wireless--or even with standard coaxial cable combined with fiber that's the standard for networks like Comcast's. That disadvantage suddenly goes exponential as 5G fixed wireless and wireless are rolled out this year in the US as they already have been in China--to great effect for China Mobile especially. And that's likely to be the case especially as Verizon's small cell based Ultra Wideband becomes more available to larger chunks of the US population.

Could a titanic teamup of Elon and Jeff deliver a satellite network product to compete with that? Possibly in some places. And Musk could certainly hook it in with Tesla vehicles, as he's attempted to do with the solar/battery storage business of the former SolarCity. But it's going to take a lot of money to roll out anything on the scale

Roger Conrad

4:33

the Big Three US wireless companies (include T-Mobile US) are doing right now and will be able to offer fully by the end of the year. And don't forget that not all of Musk's or even Bezos' ventures work out at all--let alone meet the hype. The former SolarCity's loss per dollar of revenue gets bigger for every additional dollar of revenue it earns--the definition of perverse, reverse economics of scale!

Jim N.

4:47

Which companies will be the big players in the electric charging stations.
Will the utilities be able to handle the electric load?
Have you heard anything about the company BEEM. They build a freestanding electric charging station with it own solar panels that don't need to be attached to network.

Roger Conrad

4:47

So far, regulated electric distribution utilities are by far installing the most electric vehicle charging stations in the US. That includes California where, after years of resistance to the idea, regulators agreed to allow companies to include the investment in regulated rate base, where it adds to earnings as deployed regardless of volume demand. The state recognized that its utilities were in fact the only companies with the reach, scale and financial ability to build critical scale fast enough for it to meet the goal of being carbon neutral in the next 20 to 30 years. And we're seeing similar efforts in other states as well.

As for non-utility companies, it's frankly tough to see how the economics work. I assume you charge some sort of fee for the use of your station. But you're also going to be competing with utility owned stations, as well as plugs at residences and businesses--and utilities aren't going to be taking a markup since they make money on rate base investment.

Roger Conrad

4:52

You could try to increase margins by controlling the supply--such as what Beam Global is doing with great fanfare by attaching solar panels to the charging stations. My question though would be what happens when someone wants a charge at night after the battery runs down. If you didn't have a connection to the grid, I doubt you'd see that potential customer again. Bottom line this looks like a stock ripe for harvesting gains. The company itself has consistently lost money every year while bleeding cash ($4.9 mil last year negative free cash flow). And with all due respect to projections for a 4-fold increase this year, revenue has been all over the map.

David O.

5:00

Roger,

You see it coming...Biden Regime and RINOs printing money until the cows come home. Retired need income, but worry about preservation of capital. Assuming increasing monetary inflation how would you compare the likes of DUK, D, EIX, with gold and silver?

Roger Conrad

5:00

I'm a long time advocate of holding as inflation hedges high quality natural resource stocks and stocks denominated in resource-linked foreign currencies like the Canadian dollar and Australian dollar--which will see currency appreciation from a declining US dollar. My Dad who passed in 2013 was very successful with gold and silver. My own basically buy and hold strategy since has been frankly less so but still successful.

I think in the next 3 to 5 years we'll likely see new highs for both metals. My concern for income investors with owning too much of them is--other than with some derivative ways to own--you don't earn any income. And if we have to wait too long for them to move, the temptation is always going to be to sell at the wrong time.

The key to keep up with inflation for dividend companies in general--including good ones like Dominion, Duke and Edison International--is of course dividend growth. They should be able to under a modest inflation environment with solid economic growth.

Roger Conrad

5:03

If as some fear, inflation really gets out of hand, that will be much more difficult. But it does pay to look at some market history here. Mainly, utility stocks actually had positive returns in the late 1970s. They crashed and burned--along with most of the stock market--when then President Carter appointed Paul Volcker as Chairman of the Federal Reserve with a mandate to squash inflation. He of course has to crush the economy to achieve that. And like all stocks, utility shares do best when the economy is growing and usually crash when it goes into reverse.

5:04

Bottom line, these are issues to watch with interest rates near zero and the government spending more than it ever has above its revenue. That's a good reason to hold some gold. But hold in a mix with assets that are earning for you now, like those utilities.

Mike C.

5:12

Thanks for a rock-solid service amidst market craziness! Can you offer a prediction on PCG’s price? (Or, price recovery post-bankruptcy?) The price seems stalled or trending slightly lower, but the accumulation/distribution line over the last three months suggests shares are being steadily accumulated. I’d welcome your thoughts on PCG’s likely future catalysts.

Thank you!

Roger Conrad

5:12

Thanks Mike. My thought last year was that PG&E Corp (NYSE: PCG) would move to a low-to-mid-teens range by this time, provided the company avoided significant new liabilities during fire season that could threaten the health of the nascent California Wildfire insurance fund. As it turned out, they apparently have. But the fact that this was by far the state's driest and most fire-prone year ever appears to have understandably kept investors more cautious than they might otherwise have been.

I still think we're going to eventually see PG&E as a $30-$40 stock paying a fat dividend in the next several years. And I would lay heavy odds on a mid-teens price later this year as the company continues to prove it has changed its ways. If anyone can push the needed culture change here, it's going to be CEO Patricia Poppe, who was a major force reshaping Michigan's CMS Energy (NYSE: CMS) into the efficient company it is now. She knows what goes on at the operations level and has shown she knows how to improve it.

Roger Conrad

5:15

The $973 mil sale of space on the company's transmission towers to SBA Communications to pay off debt is something previous management would scarcely have thought of, much less dared to do. But it's a very good sign for PG&E's recovery. I wouldn't wholly brush off the risk here. Mainly there's no doubt California has become more fire prone and there are politicians, judges and other advocates who seem determined to stick it to the utility. But the record of utilities coming back from any problem including bankruptcy is pretty much unblemished in the past century plus. And PG&E looks like the next company to affirm the trend.

Jim C.

5:20

Roger,

I notice the share price of AES has been moving up steadily and is $3 or so above your recommended buy price. Do you think there is some possibility of a take over by the likes of someone like D or are the shares ascending mostly due to the green energy hype around the company. I have a good size position and have a gain so I would like your current guidance at this juncture as to what to do.

Kind regards,

Roger Conrad

5:20

If AES were to be taken over, the most likely purchaser would be a company that's interested in its global portfolio--which should still be well over half of revenue in the Q4 results to be released Feb 25. I would be very surprised if that included Dominion Energy, since its interests are considerably more local. Dominion would be a good match for Duke Energy, which has complementary CAPEX plans in renewable energy and a common geography in the US. But for AES, the more likely suitors in my view would be companies that already have an international presence and renewables focus, such as fellow Aggressive Holding Enel SpA (Italy: ENEL, OTC: ENLAY), which by the way is also more than five times its size by market capitalization. An AES/Enel tie up would take a lot of work to win regulatory approvals. But the pair do have complementary assets in multiple countries, which would increase the odds regulators and politicians in places like Brazil would eventually sign off.

My view is that AES is mainly rising to

Roger Conrad

5:22

these levels because investors are deciding its green exposure more than offsets the fact it operates in South America--which is NOT a popular investment theme right now generally. With the stock at 18.6X expected next 12 months earnings, I don't see it as overly expensive, as I noted earlier in the chat. But I would think about taking a partial profit on a push to the mid-30s from here--maybe sooner depending on the earnings Feb 25.

Howard F

5:29

Would you sell SHLX and ENBL take your loses and move on

Roger Conrad

5:29

Hi Howard. I talked about Enable Midstream a bit earlier in the chat in relation to a possible sale by Centerpoint of its ownership interest. With OG&E now expressing its interest in a sale, my view is a deal would likely include an offer for the 20% or so owned by the public. I think that's worth waiting around for at the current price at least.

Our advice in Energy and Income Advisor--which again is the place to go for oil and gas midstream, the only such advisory that's survived the six-year plus energy bear market--is to buy Enable up to 6. Advice on Shell Midstream was sell for some time, shifting to a hold earlier this year when it hit bottom. It's not that we don't like the assets. it's that Royal Dutch Shell won't tell investors what its plans are for the unit--that means the risk of a buy-in on the next dip, which the GP itself could precipitate with a dividend cut.

Howard F

5:31

MMP and OXY take loses or hold

Roger Conrad

5:31

Again, these are both EIA stocks, so best answered in detail at our chat for that service on February 25. Short answer is we're holding onto both. You can read more about Magellan Midstream's earnings in the Utility Report Card comments.

Lawman

5:32

Is AES too high to purchase?

Roger Conrad

5:32

I think so Lawman. I did raise the highest recommended entry point to 25 with the February issue because I think it's business growth earned it that higher valuation. But it looks like renewable hungry investors have discovered it and my view is it's getting a little frothy. Not enough to sell it but enough to leave it alone and see where it goes, at least until earnings on the 25th.

Lawman

5:35

What are your thoughts on the AETUF merger?

Roger Conrad

5:35

I like what I've read about it so far. ARC has been such a well managed company for so long. And now it's achieving the real scale it needs as the sixth largest Canadian producer at what seems to be a very good price.

We of course don't cover ARC in CUI but we certainly do in Energy and Income Advisor. I'm going to reevaluate my buy target in the Canada and Australia coverage universe. It's also time for us to do a full rundown on Canada, so look for that in an upcoming issue, maybe the next one.

Lawman

5:39

Do you see any upcoming catalysts for AGLXY?

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