JotCast | 2/28/23 Capitalist Times Live Chat

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2/28/23 Capitalist Times Live Chat

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Arthur

7:37

Gentlemen, Thank you as always for your prudent advice. Two questions. 1) Pfizer Inc (PFE) is at its year low. Do you know why and how much lower can we expect it to go? I am looking to add to my position, but not sure on the timing and a time frame for layering in some purchases. 2) is starting to look attractive to me. How much lower can reasonably be expected. Thoughts on AESC in general? Thanks

Roger Conrad

7:37

Hi Arthur. I think Pfizer is facing more regulatory pressures now than other big pharmaceuticals, probably because they've been at the forefront of developing and selling coronavirus vaccines. They're also rumored to be pursuing acquisitions specifically Seagen for $30 bil more or less, which investors always hate in an uncertain market like this one. The selloff appears to be overdone, particularly in a sector that's retained strength like pharma. But we continue to prefer Abbvie and Merck on dips for fresh money,

I still like the AES mandatory convertible preferred, which at its current price yields about 7.6%. As I noted above, the company had solid 2022 earnings and the lower than expected 2023 guidance doesn't look like a big deal--as it's based on what appear to be temporary factors.

Steve Y

7:42

Long time and appreciative subscriber to your newsletters over the years- thank you for your consistently thoughtful and insightful analyses. Question: What companies should be avoided if one wishes to limit exposure to wind energy- particularly offshore.

Roger Conrad

7:42

Thank you Steve. The companies most exposed to offshore wind in the US are Avangrid Inc (NYSE: AGR) and Dominion Energy (NYSE: D). EverSource (NYSE: ES) and Public Service Enterprise (NYSE: PEG) both appear to be paring back to transmission exposure. Globally, you have Orsted and Northland Power as players, along with RWE AG.

In retrospect, NextEra Energy (NYSE: NEE) looks pretty smart sticking with onshore wind and solar and avoiding offshore. But I think it would be a mistake to count our offshore wind entirely in this country. Mainly, the cost overruns we're seeing really have nothing to do with offshore wind but the fact that these are big projects that take years to complete. There's still a lot of money and regulatory support to get them built. And in the meantime, these things are up and working all over the world, particularly in Europe, generating competitive energy.

buddy

7:42

'Do you have an opinion on FTI. It has been making new highs daily on heavy volume.

Elliott Gue

7:42

We still like FTI, particularly its leverage to deepwater offshore activity. Like all smaller cap services names, it's likely to see higher beta to a potential pullback in the group. Its still a name we'd consider adding to the portfolio on a dip.

Eric

7:46

KMI has underperformed other midstream companies since early January, even before earnings release. What are your thoughts on KMI at the current price in the low 17's? Thanks.

Roger Conrad

7:46

Hi Eric. It looks very cheap. In fact, it's now below my Dream Buy price for those who don't already own it. As I've indicated in Energy and Income Advisor as well as Conrad's Utility Investor, I thought the Q4 earnings were quite solid as was guidance, even though the company hit a bump with the cost of carrying variable rate debt. US midstream is an industry that continues to consolidate and Kinder with its growing share of natural gas transport is definitely a consolidator. I don't think anyone has much to worry about holding Kinder.

Eric

7:54

Thanks for holding these sessions! Why has NEE underperformed the utilities ETF XLU so much? Is it in reaction to rising long rates and if so, is it typically more sensitive to long rate changes than other utilities? Thanks.

Roger Conrad

7:54

I think its basically a partial unwinding of the stock's premium valuation to other utilities--NextEra is now trading at 23,6 times expected next 12 months earnings versus P/Es in the low 30s in recent years. That's still a premium to the Dow Jones Utility Average at about 15X. I would argue it's well deserved, considering the clear path the company has to consistent and reliable dividend growth (10% this year). But I think a recent capital raise, some general disillusionment with renewable energy development and a Federal Election Commission investigation are giving some analysts cover to tone down bullish forecasts--and that's meant selling pressure from institutions that own 92% of the stock. I think concerns about all three are well overdone, especially the FEC "investigation" which involves just $1.2 mil in allegedly illegal campaign contributions. But the selling is giving investors an opportunity to buy NEE and NextEra Energy Partners below our highest recommended entry point for both of 80.

Steve Y

7:56

Elliott and Roger: Could you please comment on the relative attractiveness of royalty trusts compared to producers if one wishes to bet on increasing oil prices over the next few years. Thank you, and thanks for fielding questions from your subscribers.

Roger Conrad

7:56

Hi Steve. As I indicated in answering a royalty trust vs active producers question earlier, I think selected royalty trust could offer much higher dividend growth due to their leverage. The producers will offer a much surer thing.

Ray

8:04

Thanks for holding these chats. Can you give some guidance on TRP. It’s down double over the last year compared to other conservative holdings I own. As I get older I lose patience much quicker as time is not my side to await long recoveries.

Roger Conrad

8:04

You're welcome Ray. The issue with TC Energy this year is can it finish the Coastal GasLink pipeline this year, bringing eastern British Columbia natural gas to the coast for LNG export--and can it keep costs within the range it's already announced. This week, another possible complication emerged with possible vandalism of already completed sections of the pipeline that appeared to trigger some selling of TRP shares.

On the other hand, TC management this month also affirmed its projection of 5-7% EBITDA growth the next few years including 2023 as it completes the pipeline. And a planned CAD5 bil in non-core asset sales to strengthen the balance sheet looks both doable and enough to cover addition costs on the fully subscribed CoastalLink. The dividend increase is the latest evidence of the continuing strength of this diversified company. It may indeed take patience for a recovery. But yielding 7% you're certainly being paid to bet on one.

Herm

8:07

Is there a problem with BEPC as the shares have been declining or is it a buy at this time?

Roger Conrad

8:07

Hi Herm. As I highlighted in Utility Report Card comments for the February issue of Conrad's Utility Investor, Brookfield had strong 2022 and Q4 results, raised its dividend a solid 5.5% and affirmed long-term cash flow growth guidance. What appears to be weighing on the stock is uncertainty about closing the Westinghouse and Origin Energy acquisitions. But this company has a long track record of successfully closing deals and boosting earnings from the acquired assets. And that's worth betting on in my view, particularly from this price.

Guest

8:09

Do you have any opinion about FDUS?

Roger Conrad

8:09

It's not one we cover at this time. They have a great track record paying dividends. But I would also say this is a tough time for business development companies with rising interest rates and the onset of a recession would be a pretty major headwind.

Guest

8:12

Roger, Liked your comments on DTEGY, TEZNY, TRN on page 7, but concerned about getting important updates on their progress. Will you be following them? Thanks, Jim T.

Roger Conrad

8:12

I cover them in Conrad's Utility Investor in the Utility Report Card coverage universe--which you can access by clicking on "Utility Report Card" under the "Portfolios" tab. The comments column will always have extensive information on business fundamentals and important news. And of course, you can always ask questions during the chats. By the way, TRN and TEZNY are the Italian and US listings for the same company, Terna SpA.

Larry

8:14

Roger, are there any Mortgage Reits that will do well in a higher for longer interest rate setting? ABR, ARCC, CSWC, or FDUS?

Roger Conrad

8:14

Hi Larry. I think that really depends on whether higher interest rates bring a recession, and hit credit quality. I think KREF--the KKR Real Estate REIT--has the ability to profit from higher rates. But again, credit quality is the issue, especially when higher rates make loans less affordable. So I'm pretty bearish on this group right now with few exceptions. I do track M-REITs extensively in the REIT Sheet for those interested.

Don R

8:19

How are you feeling about current interest rates and their impact on Utilities. 5% for short term is a lot higher than many utilities are paying now. Does that mean there will be even more downside risk as many are down 20% or more from 52week highs.

Roger Conrad

8:19

Hi Don. As I answered in a previous question, there's no meaningful correlation between utility stock returns and changes in benchmark interest rates--starting with the DJUA's 2% plus return last year with the 10-year Treasury note more than doubling. Where there is risk is with earnings guidance--and companies with big projects in the works they need to finance are most exposed. As for the risk of more downside, if higher rates do bring on a recession, the entire stock market is headed lower. But the way to look at this is on a stock-by-stock basis--so long as the companies you own are solid on the inside (and portfolio recommendations just proved they are), lower prices are a time to target adding to holdings. The time to sell is when the momentum is running the other way, as it was for many stocks last year.

Alex M

8:24

There's been a real pullback in some of the major pharma companies lately... specifically JNJ, PFE, and AMGN due to M&A activity. Just curious if you gentlemen think this is a good entry point, or if there is more room to fall in the space. Thanks.

Roger Conrad

8:24

We're definitely watching it. I would point out that the big pharma we've had in the CUI Plus/CT Income Portfolio has not participated in the pullback--so we're actually more in a profit harvesting mode. But as I noted answering an earlier question, some of these stocks that have taken hits are looking more attractive than they've been in a while.

On a broader point, a lot of you today have asked about why some of the historically strongest companies in other sectors--NextEra Energy in the utilities for example--have been underperforming. The big pharma retreat is really pretty much in the same vein: Investors re-rating companies from higher to lower valuations. So it really has nothing to do with the factors that make these companies good long-term investments like safe and growing dividends.

Roger Conrad

8:26

Bottom line is we think we're coming into an opportunity to buy high quality in multiple sectors--that's why we've been holding a lot of cash (29% plus in the CUI Plus/CT Income portfolio). And we're looking forward to putting it to work, now that the early year rally appears to be unwinding.

Robert

8:40

Dominion, In review of the past few years, I believe Dominion is trying to go totally Green. Selling pipelines, selling partial Cove Point, and likely the rest of Cove Point, when there is such a demand for gas, has me concerned. It seems like they are putting the future in offshore wind and ridding itself of fossil fuels. Their debt is skyrocketing. Your advice on selling when a company's operations and financials are deteriorating as a company, has me concerned, to the point D could even cut dividend. Am I missing the something on their direction? I don't want to endure something like what Southern's investors have gone through with Vogtle delays and costs. Thank you for the best advice in the country. I am probably way wrong, but sold half my position in $62-63 price. I'm thinking next month they are suppose to have an investors conference.

Roger Conrad

8:40

Hi Robert. Thank you for that great compliment. Certainly, your decision to sell some of your Dominion has in retrospect proved to be a good one. I've answered quite a bit about this company in this chat, so I won't repeat. I do think the sale of the Questar Pipeline was timely--and as it turned out they got about $300 mil more for it that either Berkshire was going to pay or that the eventual buyer Southwest Gas Holdings (NYSE: SWX) was able to unload it for this year. And I think the deal worked out in Virginia this month on regulation will allow them to put together a pretty solid strategic plan to grow earnings and dividends. The offshore wind facility is still a concern. But barring something really out of the blue, I think we're pretty much at bottom here for Dominion.

buddy

8:42

Please, your latest opinion on Suburban Propane if one is looking for stable income and modest appreciation. Thanks.

Roger Conrad

8:42

I think it's a buy up to 16 but pretty much for more aggressive investors. I thought Q1 results (end Dec 31) were decent as I indicated in the Utility Report Card comments--but it will need more scale to offset future commodity price volatility, sales impact on weather etc.

Guest

8:44

Good afternoon. Sorry I am late. If no one asked, thoughts on OGE Energy?

Roger Conrad

8:44

I think its basically a hold at this point. They basically raised their dividend by a token amount and earnings guidance while it looks conservative doesn't leave much margin for error. I will have a full recap of Q4 in the March issue Utility Report Card comments--but no change to the hold recommendation at this time.

Robert

8:47

For income and safety, Enterprise Products Partners has been best in class with everything thrown at them from green experts, which prove to be so wrong in human flourishing. What would you say, could be the highest percentage of one's portfolio to holding such a Best in Class company like EPD. Elliott and Roger, Thank you so much for the advice you provide and continue to provide. Your definitely a EPD best in class organization.. (also Sherry).

Roger Conrad

8:47

Thank you for that Robert. We appreciate it. Generally speaking, we prefer more diversification rather than less--and of course individual investors' needs differ. But I would not consider 5% of a portfolio in a high quality company as excessive.

Guest

8:53

Hello Roger and Elliott: SWX just dropped 10.5% today? What does that tell us about the company? The market? The holders of the stock? Thanks. Barry

Roger Conrad

8:53

Hi Barry. Actually, Southwest Gas Holdings closed down 92 cents to $63.01. I see the trades you're talking about that supposedly took it down to under $60 after hours. But the most recent price at Bloomberg Intelligence is where it closed the day at $63.01. The jagged activity could have been related to the Q4 earnings announcement, which was after hours. But while I'm still looking at the report, there's really nothing in it to prompt a reaction. It's possible there will be in the earnings call tomorrow, with news on the Centuri spinoff the most likely candidate. But at this point, it looks like what you saw is not real trades.

Mack

8:53

Hi Folks. Sent in a question earlier on CQP. Aprx 20% price decline since Dec 1st. Any notable reason other than falling LNG price? Yield is attractive now. Thinking of adding. What's your view on CQP? Thanks.

Roger Conrad

8:53

Hi Mack. Hope you saw my answer from earlier in the chat. I agree Cheniere is attractive at this price--it wasn't 20% higher.

jeff B

8:54

Hi Roger, just got home. Sorry if this question was asked. What do you think of NEE/Q.

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