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2/27/25 Capitalist Times Live Chat

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Roger Conrad

4:04

Thanks Don. I think Dominion Energy is probably the biggest potential beneficiary. As I noted earlier in the chat, it's also arguably the most challenged to meet the new demand--starting with getting CVOW on line and after that a lot of natural gas, solar and possibly nuclear if it can give VA regulators a reliable and believable cost estimate for a new reactor or SMR.

Entergy Corp looks like another big beneficiary from AI data centers and is also benefitting from re-shoring. The stock is a little expensive in my view though.

That said, as you can read in my comments in the Utility Report Card--almost every power and gas company has an AI demand angle. And all of them have a cost saving and wildfire control angle as well. Look for another piece on beneficiaries in April.

Dwayne E.

4:08

Sempra tanked earlier this week on lower than expected earnings followed by downgrades and price adjustments downward. Was the earnings report that bad or over reaction? Is this a good buy here at the $72 price range or should one wait and see? Or maybe not buy at all.

Roger Conrad

4:08

Hi Dwayne. In a word, yes. I think Sempra was overvalued up until this week. But the reaction was greatly out of proportion to the actual guidance reduction--which is really more of an acceleration of investment that increased costs near-term but will boost growth starting in 2026. The recent volatility is a very good reason to remain disciplined on entry prices--as well as the merits of taking money off the table from time to time in stocks that rise above what's justified in business prospects. But Sempra is back below my highest recommended entry point of 78 and rates a buy for long-term investors.

Maynard R

4:09

Hello there, regarding EXE Expand Energy...
their dividend is only a little over 2%
and they've had a big run-up in price (approx 42% in the last 6 months). Do you think it has a lot more to run?

Elliott Gue

4:09

EXE pays a base dividend and then does share buybacks/variable dividends when they have the free cash flow to support those. Natural Gas prices are coming off multi-year lows last year, so EXE has not been producing enough free cash flow to fund variable dividends for the past few quarters. With gas prices now much higher than they were for most of last year, that's changing and EXE has started to produce significant excess free cash flow. SO, I think you'll see that excess free cash flow returned to shareholders this year via 3 main avenues -- paying down net debt (this transfers value from bondholders to shareholders), variable dividends and buybacks.

Our target for EXE is $140, we outlined the rationale behind out valuation target in the most recent issue. It's based on free cash flow in a $4/MMbtu gas price environment.

David S.

4:10

I may have missed it, but have each of you chosen your favorite holding for 2025? Roger's choice last year was ET, which did quite well. Thanks.

Roger Conrad

4:10

Hi David. We actually did answer that question in the chat. But Elliott mentioned Expand Energy (NYSE: EXE). And while I still like Energy Transfer for those who don't own it, I would take a look at South Bow (NYSE: SOBO)--the owner of the Keystone XL system that spun out of TC Energy late last year. it yields close to 8% and I think is a takeover target--stock is starting to get some traction as investors realize tariffs won't disrupt the business.

Mr. G

4:14

What's your current recommendation for XIFR (formally NEP). I have a large investment and a large loss in it, in a tax-sheltered account, so no write-offs, and no income.

Also, you've been positive on AEM, however, it keeps drifting lower. Stay with it? Get rid of it? Add more to it?

Roger Conrad

4:14

I'm sticking with XRLP--the former NextEra Energy Partners--for now. The lack of dividend does lessen the appeal. And the decision to hold in all free cash flow the next few years to pay off the CEPFs and other debt did surprise me. On the other hand, it also basically de-risked the recovery--and the company should be able to resume stock buybacks and dividends in the next 2-3 years. Not my best stock but I do think we've seen the bottom.

Guest

4:20

Hi Roger: Can you give us readers your thoughts about (i) DT Midstream Inc and Targa Resources Corp and (ii) their appropriateness as an investment consistent with our philosophy under EIA? I have been doing lots of reading and found a fund (Westwood Salient MLP +Energy Infrastructure Fund - $1.22B) which lists their holdings by weight. Targa Resources is the 3rd largest holding and makes up 7.43% of the fund. DT Midstream appears to be on the smaller side with a $10B cap and is the 4th largest in the fund at 7.36%. Their yields are not great. What makes them attractive, if at all? I do not recall ever having seen them discussed in EIA. Thanks for all of your good advice over the years. Barry

Roger Conrad

4:20

Hi Barry. Thank you for those kind words. We track both of these companies in our MLPs and Midstream coverage universe, which you can find by clicking on the "Portfolios" tab on the Energy and Income Advisor website. DT is currently rated hold with a profit taking price of 100 and Dream Buy price of 70. Targa is a hold with a profit taking price of 210 and Dream Buy price of 150. Our table also posts payout ratios, debt/capital ratios, our proprietary Risk Level assessment and our highest recommended entry point.

At this point, we would view both of these as high quality companies. And both are coming off a solid Q4 with favorable guidance. But both are also a bit expensive and we prefer the generally higher yielding midstreams in the EIA Model Portfolio.

Michael L

4:23

If southbow reports good numbers,,etc on March 5th do you intend to keep it in the portfolio? Thanks for a fantastic job

Roger Conrad

4:23

Thank you Michael. We appreciate it. My view is we'll keep South Bow unless the numbers and guidance for the business are really bad, or more likely it gets a high premium takeover offer. The key asset is the Keystone XL liquids pipeline system--including the main WTI Cushing/US Gulf Coast link. And results should be very steady. I would also look for management to largely assuage any remaining investor fears that tariffs will seriously disrupt the business, given it's based on capacity contracts with the world's strongest energy companies.

Susan P

4:27

A quick question for Roger: past CUI issues have had maps depicting regulatory "relationships" for utilities in various states/regions. Is it safe to assume those relationships are relatively static? Thanks

Roger Conrad

4:27

Yes. The time to reassess is always following state government elections--governors appoint regulators in all but a handful of states, where they're directly elected.

While the federal election definitely triggered a sea change in Washington, it was pretty much all status quo on the state level. And that means little or no real shakeups on utility commissions resulting from the voting--which for the majority of companies was very good news for investment plans and earnings growth guidance.

Michael L

4:32

Forgot to ask, but what are your thoughts on Enbridge.

Roger Conrad

4:32

We continue to rate Enbridge a low risk buy at 45 or lower. And the stock is a bit below that now in the low 40s with a yield of 6.4%--after the December dividend increase. The company last week posted pretty solid Q4 results and generally affirmed its 2025 guidance. The primary driver of growth is investment, which now includes CAD1.9 bil in gas distribution utility projects following the acquisition of Dominion Energy's natural gas distribution companies. There's also extensive transmission system modernization, as well as solar and offshore wind in France. The result is predictable cash flow and dividend growth--solid value for conservative investors. Also not a lot of exposure to tariffs, so probably upside from there as fears fade.

Alex M.

4:34

Hi Roger. Pretty big moves from SRE recently after earnings. What are your thoughts? Any changes to your recommendation? Thanks.

Roger Conrad

4:34

Hi Alex. Thanks for your question. I've talked quite a bit about Sempra during the chat--including the guidance cut for 2025 that set off the selling from what had been an inflated share price in my view. The stock is back below my highest recommended entry point of 78 once again and is a buy for anyone who doesn't already have a position.

Alex M.

4:42

Hi Roger. With the recent pullback in MRK, is it getting interesting to you again? Thank you.

Roger Conrad

4:42

Hi Alex. I'm feeling pretty good about our decision to sell down and ultimately out of this one last year. But while the stock is a lot cheaper than it was last year--and while Q4 results were solid particularly for Keytruda--I'm not ready yet to jump back in. In fact, I'm taking a hard look at the Big Pharma we still own in CUI Plus/CT Income, Abbvie, as a candidate for paring back due to recent momentum-fueled share price gains. I will also say I prefer Abbvie to Merck as a long-term holding. Not only do patents for the primary treatments fueling growth have a lot longer to run than Keytruda. But Abbvie also has a far deeper bench of treatments to follow on in coming years. That stock has come a long way in a hurry, however. And as we've seen time and again in this market, Big Mo does eventually run out and gains can evaporate very quickly. Look for more in the next CUI Plus--the week of March 10.

Lee O.

4:51

artna down just under 5% recoverin g some. i can find no news and vol is low.is there anything i have missed.

Roger Conrad

4:51

Hi Lee. No I don't think you've missed anything. Artesian Resources doesn't report earnings until March 7. And aside from the regular semi-annual dividend increases, there's been basically no news since the Q3 results in early November.

A likely reason for the volatility is ARTNA is a very small stock ($320 mil market cap) that's nonetheless heavily represented in 42 number of ETFs (14.76% ETF ownership)--and these do get traded pretty heavily. Let's see what they report March 7. Stock is still a buy up to 45--and a takeover target.

Frank

5:02

BSM currently has a 10% yield with management guiding to get the dividend back to $1.90. Assuming the same 10% yield it would bring the stock to $19 for a 27% gain plus the dividend yield of 10%. What are the chances of their getting back to $1.90 dividend? Sounds like a slam-dunk to me

Roger Conrad

5:02

Hi Frank. Well Black Stone's Q4 distribution coverage was better than I had expected at 1.03 times, given where gas prices had been--which hurt both realized selling prices (-12%) and volumes produced on its lands (-2%) that are generally made with $3 per million BTU gas as a minimum price. And with leverage at just 0.07X EBITDA, the company was basically free cash flow breakeven after dividends as well. Management also said it was able to execute on strategic moves last year that should benefit drilling activity on its lands, with a 2% boost in output now projected for 2025.

Management has said its ultimate goal is to restore the old high water mark in the dividend. There wasn't much of anything on that said in the Q4 earnings call this week. And I think they're going to wait to see what happens to pricing and drilling decisions before committing. But that's still my expectation that they'll return to growth this year. And meantime, the yield is nearly 10% where the dividend is now.

Doug

5:09

Since tariffs are now real, what are your thoughts on how these will affect the energy & mining sectors vs. China?

Roger Conrad

5:09

Hi Doug. Yeah, I confess to not being a fan of tariffs. Whatever country puts them on, they're a tax and they're wealth destroyers. In the aggregate, we're all poorer for what's happening now. But that said, there are definitely beneficiaries. And at the top of the list are energy companies--mainly because of re-shoring industry to the US. The jobs impact is almost certainly overstated, as factories are heavily automated these days. But they need a lot of electricity to run. And that means solar and natural gas.

My view is China's main energy policy has been for some time two-fold: To cut air pollution that costs the economy dearly every year and to reduce what it needs to import. Every EV that replaces an ICE vehicle cuts oil imports. Every solar, wind or nuclear facility means buying less natural gas abroad. As for Chinese tariffs on US oil and gas, that's advantage Canada--which will start exporting natural gas on the Pacific Coast later this year.

Roger Conrad

5:14

As for mining, it's a global industry. So US tariffs on imported copper for example will just increase the cost of manufacturers here--which they'll pass onto to other businesses and consumers to the extent they're able. I think Newmont's sale of Canadian mines is timely. But end of the day. mining companies' earnings are affected by their costs, demand for their output and commodity prices far more than tariffs. I like Newmont as a gold and copper play. And I like BHP as a diversified metals play. And I expect tariffs will hurt their less well heeled rivals much worse than them in the near term. But both are values now and I think headed a lot higher in coming years.

Guest

5:19

Hi Roger: I believe that a colleague/friend of yours Lowell G. Miller was a co-founder of Miller/Howard Investments. Their High

Roger Conrad

5:19

Yes Barry, Lowell has been retired for a couple of years. And the Miller Howard High Income Equity (HIE) closed-end fund wound up operations in late 2024, per the plan when it was initially marketed.

So, I'm no longer on its Board of Directors. But it's always fun to meet up and compare notes with Lowell, who still has one of the sharpest minds in this business. And I hope he'll eventually share some of his thoughts in a Substack column, as Elliott and I do now.

Guest

5:26

(cont'd) Income Equity Fund has about 16% of the fund in master limited partnerships (ET, EPD, MPLX and Western Midstream Part, LP). They also have 2.1% of their $231M fund in Vale SA. Kindly let us readers know your thoughts about Western Midstream partners as a pipeline (no natural gas) and as a company in whom to invest. Also, your thoughts on BHP vs. Vale. hanks. Barry.

Roger Conrad

5:26

As I said, HIE has now been wound up as a fund, though Miller Howard does still have SMAs it runs under energy-focused strategies. And they sub-advise on ETFs as well I believe.

I've always liked the organization, which among other things does a bottoms-up approach to stocks as we do. But just to be clear, HIE no longer exists. So I can't say for certain whether the firm still buys these stocks for clients.

As for my opinion, I think VALE is a fine alternative to BHP--it is a little more geographically concentrated, mainly Brazil. And I like BHP's geographic proximity to China as Australia based. But both stocks are high quality and look cheap. As for WES versus ET and EPD etc, it's less diversified and it also trades above our highest recommended entry point of 35.

5:27

Hi Elliott, Warren Buffett has been buying more OXY this past quarter. Stock has pulled back and testing its breakout from Feb 2022. Anything about the company or stock makes you consider adding to any existing position?

Elliott Gue

5:27

Thanks for the question. I think OXY is OK, but I don't see a compelling reason to favor it over other Permian names. I think there are more compelling near term catalysts in the natural gas focused producers like EXE/EQT and I also like OVV with its exposure to LNG Canada exports.

Guest

5:33

AMAT dropped a lot lately. Any recomendation?

Elliott Gue

5:33

All the semis and semi caps have been slammed of late, especially today in light of the big sell-off in NVDA post-earnings today.

The semiconductor names are all near major technical support. On prior occasions when this group has neared major support, we've seen buyers emerge either just as we touch support or just after a short--term break below support.

So, I think the semis should find support near current levels or I'll likely recommend exiting AMAT in the Creating Wealth portfolio. Fortunately, I started AMAT with a relatively small position, so that gives us some leeway in this name.

Moreover, I would go so far as to say that if the semis do break down, this doesn't bode well for the broader market.

Dennis

5:33

Thoughts on AMAt?

Elliott Gue

5:34

Just covered AMAT in the prior question just above -- I'll have more to say in the next issue. Simply put, it's make-or-break time for the semis.

Carol

5:37

Hi Roger. Now that SOHO is at $.8, would you recommend buying it? How are they doing business wise. And the second question is about LYB -what is the reason it keeps hovering under $80? Is dividend safe? Thank you

Roger Conrad

5:37

Hi Carol. When a stock breaks $1 (the wrong way), I generally don't go near it. When I started covering Sotherly Hotels, I really liked the concept--basically buying older facilities in areas with business and tourist traffic and upgrading them to boost margins. Unfortunately, they got behind the 8 ball so to speak during the pandemic--and they've been fighting for solvency ever since. Next earnings are March 13. But with interest rates staying higher for longer, there's little reason to expect the negative trends from Q3 and the guidance cut then to reverse. I'm keeping an open mind. But at this point I think discretion is the better part of valor.

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