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

Return to

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

Prev Page View Full Chat Next Page

Lawman

6:43

Which is the better option as between VZ and T?

Roger Conrad

6:43

T faces more risk with its media operations but is also the cheaper stock. Verizon is the more conservative choice. Both are pretty compelling value stocks with multiple upside drivers this year.

Guest

6:47

Hi Roger. Thank you for hosting this informative chat. Is it ok to occasionally buy a stock slightly higher than you recommendation? I bought ATO and FE at about $1 higher per share but I buy very few shares at a time. Just got my feet wet with those two stocks and may add more later if they go down. Please advise. Also, what is happening with T? Do you still recommend holding it? The price has fluctuated a lot lately. Thank you for your help! - Bonnie Beth

Roger Conrad

6:47

HI Bonnie, The lower the price you buy, the bigger your prospective returns. But my intent is to hold both stocks for a while. And in fact, as I see more evidence that my premises for buying them are panning out, I'm likely to raise the buy targets--as in fact I did in February for FirstEnergy from 30 to 32. Bottom line, no big deal paying a little more and I think we're going to see some very solid returns for both stocks.

I have written pretty extensively on AT&T during this chat and I won't repeat, other than to say I intend to keep holding it. There are multiple upside drivers and from a price of barely 9X expected next 12 months earnings, there's a lot of room to beat expectations this year.

jim

6:51

Roger, I have two questions.

Can you give me your recommended buy point for MPLX, and how you think the outlook of MPLX compares to EPD and other premier midstreams.

I own PAA, ET, EPD, MPLX, WMB, and am down 55% on PAA and 50% on ET. I am concerned that you rate both stocks as a “C” grade. What should my strategy be – hold in hopes of coming back – or sell and run. I have always tried to sit still in quicksand, and not wiggle. I hate to bail out, and forgo the 8-9% return. The question is safety. Are ET and PAA over the hump of bad news, and worthy of holding for the yield?

Roger Conrad

6:51

I think you pretty much want to stay with all of these midstream stocks. As I've said to others on this chat, we're going to have a pretty robust discussion of all of these companies later this month (Feb 25) on our Energy and Income Advisory live chat. But the bottom line is even the weakest of these--which as you point out are Plains and Energy Transfer--have proven resilience over the past year. And they trade well below where they did at the beginning of 2020, the last time people were relatively comfortable about $50 plus oil. Even if you want to eventually take down your exposure to midstreams, you're not going to want to miss that part of the rally.

MPLX' buy target is 25. I would count it slightly riskier than Enterprise because it has a general partner in Marathon Petroleum whose interests don't necessarily match ours. But both are high quality outfits and I think heading a lot higher this year.

Lawman

6:53

CFPUF was purchased based on an old recommendation from your CE days. What are your current thoughts on this company, and is it worth holding onto?

Roger Conrad

6:53

Haven't looked at that one for a while Lawman. They got hit hard enough last year to stop paying a dividend for the time being. They are a survivor though--we always need forest products.

Guest

6:54

Hi Roger - I bought ATO and FE at slightly higher prices than your recommendation - I think they might have been $1 more per share than your buy price but I only bought a few shares just to get in slowly to get my "feet wet" so to speak. I tend to be an aggressive investor. What are your thoughts on ATO and FE as of now and paying slightly above your maximum price? I also am curious about T and whether you still will recommend holding it because the price has fluctuated so much over the past few months. Thank you. - Bonnie Beth

Roger Conrad

6:54

Hi Bonnie. I think I just answered your question. You're all good with Atmos and FirstEnergy I think.

Guest

6:54

Ann Rice

Roger Conrad

6:54

Hi Ann. Thanks for joining us today.

Robert

7:06

Good Morning, Roger. It is Robert. I am a long-time subscriber. When I look at the annual reports of the electric utilities, I notice that coal usually has the lowest, or second lowest behind nuclear, cost per kilowatt hour. Yet, utilities are transitioning away from coal. Am I correct to assume the various states will allow the utilities to pass on the extra cost to ratepayers? I am not from a coal state or pro-coal. I am just curious. Thanks.

Roger Conrad

7:06

Thanks Robert. I think it always makes sense to look behind the curtain at companies. In this case, there are two additional factors to consider about coal economics other than operating cost per KWH: First is the maintenance CAPEX needed to keep these increasingly aging plants running, which for many facilities rises every year. The second is the additional anticipated CAPEX needed to comply with air and water regulations, which some older plants have been able to avoid to date but no longer can.

The case utilities make to regulators when they submit plans to shut a plant is that they can avoid future costs by replacing it with a combination of natural gas, renewable energy or energy storage--and so doing they can cut overall costs and thereby hold down customer rates. And if you do consider more than operating costs that does make sense, especially if you consider there's very cheap and plentiful shale gas.

Nolan

7:08

I bought MU in 5-19 and it has more then doubled. I can't find any reference to it in P/B CUI or EIA. Your thoughts

Roger Conrad

7:08

It's not one we cover in either advisory. A good company that's cashing in on increasing electrification of industries. Our pick in Energy and Income Advisor in that space is Texas Instruments--which has a lot of exposure to the automobile sector, both internal combustion and EVs.

Guest

7:08

Ann Rice

Roger Conrad

7:08

Hi Ann, hope you can get your question in.

Steve

7:11

What's your take on PAA/PAGP after reporting?

Roger Conrad

7:11

As I said answering an earlier question in the chat, Plains' results were pretty much what I expected in terms of soft volumes--which are what drive cash flow. But the dividend cut the company made last year appears to have been enough to adjust financial policy to the current environment--meaning it generated enough free cash flow after CAPEX to cover dividends with room to deleverage, and should do so again in 2021. No change in our advice for aggressive investors to buy up to 10 or the C Quality Rating.

Dan

7:16

Hi Roger, In the Feb Utility forcaster PPL is highlighted with potentially several upside events for creating shareholder value. With their earnings release next week and the price stuck in the $27.85 to $28.35 range, and the FX exchange ratio as wind to the back, is there any missed risks buying PPL ahead of their earnings release at this stubborn price range? Thanks for all of your insight and this live chat hosting.

Roger Conrad

7:16

Hi Dan. I assume you're talking about Conrad's Utility Investor--rather than the publication I founded and edited for 27 years at my former publisher, which I believe is still in print.

I don't think what PPL reports on the 18th is really going to matter very much to its share price, though we could see the slightest of dividend increases. There's no reason not to expect regulated utilities in the UK and US to produce results as steady in Q4 as they did in Q3.

What will be important in the earnings and guidance is any indication of the progress of management's plan to sell the UK utility. The latest as I reported is Enel SpA has apparently joined four other consortia as potential bidders, with the selling price (including assumed debt) at GBP12 billion. Translated into US dollars that's about $16.5 bil, or $1.5 bil above what people were talking about before.

Roger Conrad

7:18

My view is the recent board of directors changes and the chief counsel's announced retirement in June add up to elevated odds something is going to be announced by this spring. And once there's a deal in hand, PPL is likely to lock in a British pounds exchange rate with hedging. Then we get to see how they plan to spend the money, what happens to the dividend, whether they get takeover interest etc. Until there's more clarity, I think the stock likely stays in its current range. But I think when there is, this is likely to be a mid-30s stock. That's why it's an Aggressive Holding.

Ric M

7:21

Rodger would you consider developing a renewable model portfolio or pull all renewable names into a watch list that we can use if we want to be more heavy renewable. I don’t have a feel for when a company moves enough assets to the space to be considered renewable. Maybe sort the report card to renewable tag.

Thanks.

Roger Conrad

7:21

Thanks for the suggestion Ric. I will consider it and at the least be more explicit on what companies are more leveraged to renewable energy adoption. In the meantime, you can assume that all of our favored electric utilities are players in the energy transition, as are all of the contract power producers and yieldcos. The best buys now for renewable exposure are the companies I highlighted in the February Feature article.

Robert

7:27

Roger: Robert again. I have one more “macro question.” Is 5G going to be a replacement for home internet and cable TV? Or is this a bridge too far? Thanks for all of your hard work on our behalf. Have a great weekend!

Roger Conrad

7:27

I really think that remains to be seen. 4G wireless has certainly induced a lot of people to cut the cord on local wireline phone and to drop satellite connections. But cable companies continue to hook people up to their coaxial cable/fiber broadband networks. To be sure, I don't think we've seen how powerful 5G can be to date. Verizon's Ultra Wideband looks like the best bet to do that this year. But it's taken a lot of time to deploy all of those small cells to give it sufficient reach. The other thing is we really don't yet have the compelling array of applications that really showcase what 5G can do.

It will be interesting to see if China Mobile's 5G starts to convince people to drop fiber broadband there. I didn't see any evidence of that in numbers released so far. But if there is, then there would be reason to worry for Comcast Corp and others that have the lock on broadband but only wireless by piggy backing on Verizon's 4G network.

Thanks for the well wishes. You have a great weekend as well.

Dan P

7:32

HASI - I've got a lot of gain, so tax comes into play. Is the lighten-up sell recommendation still in effect? If so, roughly what percentage for an average long term holding in a diversified portfolio?

Roger Conrad

7:32

I officially shifted Hannon back to a hold in the February issue, mainly because it had retreated back to the low 60s from the highs in the low 70s. I still think it's pretty expensive. And while something I hear in earnings on Feb 18 might change my mind, I'd be inclined to advise the sell again if it got back to the 70s again.

That said, I still think this company is a gem--the leading name providing loans to energy efficiency and renewable energy projects for municipalities and other entities, and now a major financial investor in contracted renewable energy facilities. But the stock has come a long way in a hurry. And a 2.2% yield is pretty paltry for a company growing its payout at a low single digit rate.

Again, this is the rare name I recommended selling completely back in January as we had a more than 300% profits from initial entry. And I think it is still pricey, and a downside risk for anyone overweighted in it.

Tom L

7:37

In the last 60 days, the share price of WEC has dropped over 25%. What is your explanation for this change, and what do you envision as the price a year from now?

Roger Conrad

7:37

I've had a long standing highest recommended entry point of 90 for WEC Energy. Before the recent decline, I had thought it too pricey for its ability to grow sustainably. And in fact shares several times crossed the threshold for profit taking, which I did advise.

Conversely, at the current price in the low 80s, I think you're once again looking at a high quality company trading at a good entry point. The story is unchanged from what it's been the past few years--they invest in regulated rate base at returns on equity approaching 10%. That adds seamlessly to earnings, driving mid to upper single digit dividend growth. We're even seeing some insider buying now with the stock at a lower level.

Don

7:40

Are midstream pipelines still long term buys? ET, MMP, EPD, MPLX. Other than the price of oil, what is the biggest downside risk?

Roger Conrad

7:40

Biggest downside risk to all midstreams is declining volumes, which take down cash flow and can put dividends at risk. I would rate that a low probability event for all of these companies, though Energy Transfer won't report Q4 results until Feb 17. The rest have turned in solid numbers that support dividends and balance sheet and demonstrate resilience in the past year. And as I've said earlier in this chat, all of these traded at substantially higher levels in early 2020 when oil was last sustaining a $50 plus price. I think they'll get back there this year.

Hans

7:42

Any advice on ARESF thank you

Roger Conrad

7:42

Hi Hans. I'll have another REIT Sheet out next month. In the meantime, Artis REIT remains a buy recommendation up to USD10. Earnings are due out Mar 2 but the dividend increase announced in December for payment last month is a very bullish sign the company has turned the corner.

Hans

7:46

Dominion (D) has been around low 70 th. for some time, your advice to buy up to 85 what does it take.

Roger Conrad

7:46

I don't think Dominion is the kind of stock where you want to have too many expectations of big short-term moves. I think they'll serve us up another solid round of numbers and guidance tomorrow. I think they'll get a compromise in South Carolina on their rate case. And I think the Biden Administration Bureau of Ocean Energy Management is going to speed up the permitting process for the Coastal Virginia Offshore Wind Center, which should also give the stock a lift. I also think there's the potential for a merger with Duke Energy that could benefit both companies. But again, this is a company I've owned for probably 30 years to very good effect--and it's one I intend to hang onto for a long time to come.

Fred

7:52

Is there a future for my shares I hold of CHL and what would you recommend doing with them?

Roger Conrad

7:52

China Mobile and the other big Chinese telecoms are trying to get the NYSE to re-list their stocks. And they're petitioning the Biden administration to roll back the 11th hour Trump administration that for the first time in my lifetime anyway forbade US investors from owning a stock. Given the apparent enmity in Congress toward China, I don't have high hopes for their success. What I can tell you is the Hong Kong listed shares for China Mobile (HK: 941) have gained a bit of ground since NYSE delisted them. And I think they're going a lot higher as the company continues to report 5G success.

I'm not sure what you can do with the shares you hold at this time, other than hold on and hope for some resolution that allows you to access your shares. I will continue to cover the company's underlying business developments along with China Unicom's in Utility Report Card. Wish I had a better answer for you.

Fred

7:52

Thanks

Connecting…

Your current subscriptions

None

E-mail Address	Chat Owner	Status	Remove

Enter your email address to be notified when Sherry Roberts hosts a chat