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

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

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Roger Conrad

7:52

Thank you!

Harvey F

7:56

For my IRA Account, I had some KMF (sister to KYN, covered by CUI - & this CEF also added some renewable energy holdings)...Do you feel management & improved outlook for energy makes this a worthwhile consideration ? Thank you

Roger Conrad

7:56

Hi Harvey. It looks like a decent closed end fund and it trades at a big discount as well. I prefer the Blackrock Utilities, Infrastructure and Power Opportunities Trust (NYSE: BUI) closed end fund for that space, because it doesn't use the leverage. It's a bit above my recommended price of 24 right now but would be a buy to that price or lower, and I track it in the Utility Report Card as I do KYN. I guess of the two KMF vs KYN, I would prefer KYN--for it greater leverage to a midstream sector recovery.

Bill

8:02

AY and BEP are now well above your buy targets. I was fortunate to buy below those targets. At what point do each become sells based upon underlying fundamentals?

Roger Conrad

8:02

For those questions, I advise mechanically and therefore unemotionally following the advice in my "Trading Above Target" table that I highlight in the Portfolio section of every issue of Conrad's Utility Investor. When a stock in the table trades above the number listed in the far right hand column, it merits a partial sale, particularly for those overweighted in it. Whether you are or not is a decision you'll need to make on your own, as every portfolio is different.

As for deciding whether a stock is a sell based on underlying fundamentals, that's what I consider my number one job for you as a reader--pointing out when this is happening before a stock really tears a hole in your portfolio. Identifying at risk companies is always my first priority every earnings season for portfolio companies. Fortunately, none have appeared so far with Q4 reports and guidance. But I am vigilant.

Jimmy

8:03

Having aggressively traded AES since your first recommendation, my cost basis in an IRA is $6. so your recommendation to lighten up at $30 would be a 5x profit.

Roger Conrad

8:03

Glad to hear that Jimmy. And kudos for buying in at $6--that's a point when not a lot of people wanted to hear anything about AES!

Jimmy

8:08

Continuation of prior comment: Do you see the stock having much runway beyond 30 in the years ahead?

Roger Conrad

8:08

It's come a long way in a hurry. But I still don't see AES as particularly expensive at 18.6X expected next 12 months earnings, given its strengths. I do think it's selling for more than I want to pay for it now. But I may change my mind depending on what I see with Q4 earnings and guidance on Feb 25.

As for where AES may eventually go, the all-time high was more than 20 years ago in the low 70s--when this was arguably a far less valuable franchise. I think if management keeps executing, it could get back there again eventually. But it's not going to happen all at once.

Al C.

8:10

First chat session that I have been able to attend in quite some time. Great as always. New to me is the gray background for your statements. I frequently cut and paste your comments into a Word document and sometimes print them out. The gray background will produce almost all gray sheet that will be hard to read and use much ink. Coul you reverse the background colors so that yours are on a clear background and the attendees on some very light background?

Roger Conrad

8:10

Thank you for coming out to this one and for your suggestion. I'll see what we can do. FYI, we switched systems with our chats some time ago and have generally found this one to be a lot easier to work with. But that may be an adjustment we can make. Thanks.

Guest

8:10

Hi Roger,

Roger Conrad

8:10

Thanks for coming to the chat.

Guest

8:14

Which of your portfolio holdings has the most price appreciation potential over the next 12-18 months.

Roger Conrad

8:14

Ha! Good question, though one I'm bound to get wrong. My inclination is to point to the laggards like AT&T and AGL Energy, both of which I've discussed at length already during the chat. I think Avangrid and Dominion have a great deal of potential upside, if the Biden administration proves as friendly to offshore wind as it appears it will.

In any case, my best buys for every month in CUI are going to be the Conservative and Aggressive focus stocks. February's are BCE and Enel SpA, both of which I've discussed at length during the chat and profile in the issue.

Gary L

8:16

Hi Roger - I've held Superior Plus for the income for several years. Do you see anything bright in the company's future or movement towards a higher rating? Thanks

Roger Conrad

8:16

I think they have a great formula of consolidating propane and fuel distribution companies and will continue to do so. If I had to pick one potential catalyst for a higher share price, it would still be a sale of the specialty chemicals unit for cash--which would cut operating risk and also provide cash for more fuels distribution expansion. This is a business that requires scale and geographic reach to control costs and reduce risk. The bigger Superior gets, the better able it will be able to weather anything while paying that generous dividend.

Tom

8:22

Hey, Roger, what about that AGL Energy? (Just kidding) My real question: When I sold HASI I also took a sliver off BEP and sold all of BEPC, as it was even more richly valued. I know you have a buy on BEP under 40; if the gap between BEP and BEPC narrows, is there a point where you would recommend the corporation instead? Thank you again for your indispensable counsel!

Roger Conrad

8:22

Hi Tom. Thanks for your kind words. I don't really have more to add to what I've said today about AGL Energy in this chat. I'm going to stick with it.

Kudos on selling the BEPC. I still think there's no logical reason for it to trade as much as a dime above BEP shares, since they pay the same dividend and convey the same ownership. In fact, with the risk of taxes going up for high net worth individuals under the Biden Administration, I can see a case for the MLP to trade higher than the C-Corp at some point. If the C-Corp sold for less than the MLP shares, I might consider recommending a swap. But despite the transient popularity of C-Corps over partnerships now, I just don't see any reason to pay more for the same assets than I have to. I do continue to like Brookfield as a company as I've indicated during that chat.

Dennis

8:25

How do you feel about VALE and FCX?

Roger Conrad

8:29

I prefer BHP (NYSE: BHP) for conservative income investors. It's part of my CUI Plus Portfolio, which I discussed earlier ion the chat. I think Freeport and Vale should have upside over the next several years as commodity prices turn higher, but BHP is the sector blue chip.

dudleycurtis@hotmail.com

8:31

Your thoughts on DTE & it's upcoming spinoff? Thanks Elmer

Roger Conrad

8:31

Hi Elmer. I think at a price for DTE of over 120 it's basically already in the price. But I do think the spinoff is positive for both halves of the company. The power company will get a higher multiple from renewable energy growth and the midstream will be an instant takeover target. And it may not have to wait long for a bid with Kinder Morgan's CEO expressing interest in utility-owned pipelines during the company's Q4 earnings call.

Jimmy

8:35

Roger: Do you think the utilities will catch any of the euphoria of the markets during this upswing or continue to lag as the widows and orphans investments they have so long been regarded?

Roger Conrad

8:35

Some utilities have been catching fire--mainly those that are perceived as leveraged to growth of renewable energy. And we've discussed several of them at length--AES, NextEra etc. One strategy I've been advocating is to buy utilities that are making these kinds of investments that haven't yet been "discovered" enough to get that buying boost. The US offshore wind companies I highlight in the February issue feature article are certainly good candidates for that. As for when the typical utility starts trading as a renewable energy stock--certainly justified since that's where CAPEX is going--I think we're going to have to be patient.

Andrew

8:37

An earlier questions asked about Xcel being the next Next Era, what about Algonquin? They seem to be following the NextEra model of regulated + the non regulated build out. They also have their "own" NEP in Atlantica? Do you see them having the same growth curve as NextEra once investors catch on?

Roger Conrad

8:37

It's a Conservative Holding I've liked and recommended for a while. I think the stock has gotten a bit ahead of itself at 23.2X expected next 12 months earnings, and we do have a very big profit in it. I will be looking closely at what management has to say with Q4 numbers and guidance that are now expected for March 1--and I may wind up raising my buy target. But at this point, AQN for me is a great company firing on all cylinders but with a share price high enough to merit some caution, at least in advance of Q4 numbers.

Andrew

8:43

I also have a question about GM - which if it's too far a field, you can just ignore. They seem to be really pushing the electric vehicle model, I think they have their own proprietary battery design with Honda they are using. They have Cruze auto driving unit too. I can't imagine they'll ever command a Tesla size multiple but is the market undervaluing their electric car assets?

Tying into that, do you see charging stations as the next gas/filling stations, and if so are there any developing plays that are creating an integrated model like Exxon or Chevron of oil, transport, retail - in this case power generation, transmission and charging stations?

Roger Conrad

8:43

Like I said answering a question a bit earlier in the chat, I do think GM, Honda et al will wind up dominating the EV market as these things really start to roll out. Tesla will likely keep the high end for at least a while but the company has just not shown the aptitude to mass product as these companies do. And as technology becomes more ubiquitous, scale economics will count for more and more.

Regards charging stations and integrated business models, I've been impressed by the way Total SA is carving out a dominant position in charging stations to go with its filling stations in Europe. But as I answered to an earlier question in the chat, in the US the sector with the best chance to fill out that model is electric utilities--who have the ability to build EV charging stations and put the investment in rate base. I just don't see how anyone can compete with their model in that business long-term if they want to enter it.

Don R.

8:44

Hi Roger,

Roger Conrad

8:44

Hi Don.

Don R.

8:51

How did SJR go from a dream buy under 20 to a sell just under 21? Also, what do you think of XEL now that it has dropped from low 70s to low 60s. Thank you

Roger Conrad

8:51

The main reason for the South Jersey Industries sale was I wanted to swap it out for the best in class natural gas distribution utility stock, Atmos Energy (NYSE: ATO), which had suddenly become a lot cheaper. That's the kind of move I'll make in very limited doses at the beginning or end of the year--it always pays to be on what you consider to be the fastest and strongest horse.

I do like Xcel Energy a lot at this price. As I noted earlier in the chat, I've thought it pretty expensive for quite some time, despite its strengths and upside from rate based renewable energy investment. But that's no longer the case and I recommend it a buy up to 65.

Jim N

8:52

Bezo and Musk both are developing internet service via satellite. What is the long term implications to VZ and T revenue growth? Is there room for 5 major internet suppliers.

Roger Conrad

8:52

Hi Jim. As I answered to a similar question earlier in the chat, I think the hype far outruns the reality in this case, despite the obvious star power of these two guys.

Guest

8:55

Roger,What is latest on CNP.B conversion and on offer for ALSK

Roger Conrad

8:55

I did answer a questions about Centerpoint earlier in the chat and the preferred. Nothing new to report here. I still intend to hold onto conversion in September, hoping for a sale of Enable before that.

Also nothing new on Alaska Communications from what I said in the Utility Report Card comments this issue. They got the bid for $3.40, now they need Alaska regulators to sign off. Earnings are Mar 10 at which time we'll get an update.

Guest

8:56

Ann R. Am I correct that the tax with-held from PBA and CDPYF dividends is 25%? Is this something a tax advisor could help with in assessing a portfolio's return?

Roger Conrad

8:56

HI Ann. Glad you got your question in. No, you should not be withheld more than 15% at most for dividends paid by Canadian companies. And you can reclaim what is withheld with a Form 1116 on your US taxes.

Jim T

8:57

Roger, Just wanted to ask for the latest on CNP.B conversion and status of offer for ALSK. Thanks for all your work. JT

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