You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
Return toCapitalist Times
3/28/24 Capitalist Times Live Chat
powered byJotCast
AvatarRoger Conrad
1:53
Hello everyone. Thanks for joining us. As is always the case, there is no audio. Just type in your questions and we'll get to them as soon as we can concisely and comprehensively. We will be sending everyone a link to a transcript of the complete Q&A after the chat, probably tomorrow morning as these things tend to go on for a while.
1:54
Let's start with some answers to questions we received prior to the chat.
1:55
Q. Hi Roger:
Are CAPL, DKL and ARLP all MLP’s? Therefore, the tax is deferred as it is with EPD and ET, right? I am trying to find more MLP’s to diversify my fresh money beyond the MLP’s I currently own (ET, EPD, MPLX, BEP, PAA and formerly MMP). Do you consider any or all of CAPL, DKL, CQP and ARLP up there as “best of class” MLP’s like EPD, ET and MPLX? 
I think a few of them are small cap stocks which concerns me. Should a small cap stock make any difference? Thanks for your insights/advice/thoughts as always. Best—Barry J.
 
A. Hi Barry. Thank you for your questions as always. First, you're correct. CrossAmerican Partners (NYSE: CAPL), Delek Logistics Partners (NYSE: DLK) and Alliance Resource Partners (NSDQ: ARLP) are all organized as MLPs for tax purposes. So are Energy Transfer LP (NYSE: ET) and
Enterprise Products Partners (NYSE: EPD), as well as Brookfield Renewable (NYSE: BEP) and Plains All-American Pipeline (NYSE: PAA).
 
I would consider CAPL, DLK and ARLP as somewhat more aggressive than the MLPs you currently own. But MPLX LP (NYSE: MPLX) would certainly fit in as far as top quality. So would non-MLP midstreams Hess Midstream (NYSE: HESM) and ONEOK Inc (NYSE: OKE), which you might still own from the Magellan merger. 
 
So far as liquidity is concerned, I don't see any real issues. The smallest is CAPL at slightly less than $1 billion market cap and 38.64% ownership by the general partner. But there's still plenty of daily volume.
 
 
Q. Roger. From my understanding Dominion was supposed to release its management study
1:56
on the first of March but have not been able to find any news (WSJ/NYT} except for the sharp drop in price—Winton H. (A Loyal Follower}
 
A. Hi Winton. I highlighted the results of Dominion Energy's strategic review in the March 1 Alert titled "Dominion's Strategic Review: Execution Risk but a Clear Path to Growth. I also commented on it in the March issue, which was posted a little over a week later.
 
The long and short of it is that the steps announced are positive for Dominion's ultimate recovery. And in fact, investors have been warming up to the plan in the weeks since, with the share price again approaching 50. The tradeoff of maintaining the dividend is that it's unlikely there will be increases until the 2027-28 time frame, as earnings increase and debt and the payout ratio are reduced--at the projected 5-7% annual earnings growth rate.
 
Dividend growth will come faster if the company can exceed that guidance by executing on remaining construction of the Coastal Virginia Offshore Wind facility and
complete the sales of its natural gas distribution utilities to Enbridge Inc (TSX: ENB, NYSE: ENB) this year as expected. Dominion has subsequently announced the close of the sale of the Ohio gas unit, freeing up $6.6 billion for debt reduction. The Utah sale is expected to close over the summer with the North Carolina unit in Q4. Any beating of those target dates will be a plus for debt reduction and therefore earnings, as will be continuing progress on schedule and budget for the CVOW project.
 
Bottom line: This company still has some execution to do with its recovery plans. But I intend to continue holding it with the expectation of a return to a low 80s share price in the next 18 to 24 months.
 
Q. Hi Roger: Can you comment on Atlantica Sustainable Infrastructure (NSDQ: AY)? Its price is down near its low from last October and it's below the dream price. Is it a good time to buy some? Regards--Kerry T.
 
A. Hi Kerry. Atlantica Sustainable did have a strong Q4 report. And the guidance range for 2024
EBITDA of $800 to $850 million is very supportive of the generous dividend.
 
The company is still in the middle of its own strategic review. And more important, its 42.16 percent owner Algonquin Power & Utilities (TSX: AQN, NYSE: AQN) is still in the middle of its own review—the result of which is likely to include a decision on what to do with its stake in Atlantica.
 
My view is that until Algonquin makes a decision—most likely finding a buyer for its Atlantica stake—this stock is likely to be somewhat range bound. But the company’s announcement that it’s acquiring two wind assets in Scotland for $66 million is a good sign it’s still executing on its own investment plans. The facilities aren’t huge with 32 megawatts of capacity. But they do hold renewables obligation certificates until 2033 and have no project debt. And the $66 million price is affordable for Atlantica, as well as large enough to move the profit meter meaningfully.
 
I never recommend really loading up on any one stock.
1:57
And renewable energy stocks are unpopular now, particularly yieldcos like Atlantica that depend on acquisitions to grow. But this still looks like a solid situation with a likely outcome in the next 12 months of either being fully acquired probably at a price in the low 20s—or better of having a new sponsor who will be more supportive of growth. I continue to rate Atlantica a buy.
 
Q. I have a couple queries-you can simply add them to the March webchat:
Southern Company (NYSE: SO) recently announced that it is in the beginning stages of firing up its Vogtle 4 nuke plant. SO has been wallowing a bit lately but is one of my core holdings. My question is: Once Vogtle 4 is supplying electric power, does that mark a "day of reckoning" for the utility in terms of rates, recognition of cost overruns or other financial "hits" that the company may incur? (I was sorry to see Tom Fanning, CEO, retire-he piloted the company through very trying times, particularly the nuke issues).
 
**Oil prices seem to be on the rise-
West Texas crude poked its head above $80 last week(ending 3/2/24) before a slight retreat, and Brent crude is on the march as well. I must admit I am dumbfounded as an investor yet happy as a consumer that oil has vacillated only slightly to the upside instead of pell mell higher since the Mideast powder keg heated up. My 2 cents worth is that the price of crude oil will continue to gap upward, be it in small increments or a larger pop if the Mideast ignites. My question is thus: where should we be focused as investors looking for positive returns? Should we direct our DD toward upstream, midstream or downstream players in the oil patch? Upstream-XOM, Chevron; Midstream-EPD, ET, DTM; Downstream-SUN, possibly Marathon, and whomever owns the Pilot/Flying J franchise.These names are put forward for illustration only, and apologies for any mischaracterizations. Keep up the good work!—James G.
 
A. Hi James. Thanks for your kind words and your questions. I will post them along with my answers in tomorrow's chat.
1:58
Georgia regulators have already issued a decision in the final rate case involving the Vogtle project--so there's no day of reckoning to be concerned about. All of the cost and delay issues have been decided and rates locked in. Unit 4 connected to the grid on March 1 for the first time. And so far, it appears to be running well along with Unit 3--so the risk of further cost overruns Southern would have to absorb under rate deals is now largely moot.
 
The company will announce Q4 earnings and update guidance in late April, at which time we're likely to hear plans for debt reduction as well as anticipated dividend growth that's expected to accelerate the next few years. The stock has now moved over my highest recommended entry point of 70. I will likely raise that level, depending on what we hear from Southern.
 
As for energy stocks, the biggest winners from a price spike are going to be producers--particularly those paying variable rate dividends, which are basically pegged to higher prices. Our view is
natural gas offers even better upside leverage, given where the commodity's price has been so far this year. If you look at our Model, you'll see we spread our bets all along the energy value chain. Our view is still that we're very early stages of an energy price upcycle driven by a decade of under investment that shows no sign of abating. That means the strongest companies in each subsector have a great deal of upside left--whether the Middle East winds up in turmoil or not. And there's still time to place bets.
 
Q. Dear Mr. Conrad. I’ve never heard of this one, Canadian oil and gas producer Alvopetro (TSX: ALV, OTC: ALVOF). But it ranks pretty well on Seeking Alpha’s E&P list, and great looking divvy. Perhaps too good? Thoughts? Thanks—Cliff W.
 
A. Hi Cliff. This is not one we're familiar with. It does look interesting for the yield, particularly with the energy upcycle in its early stages in our view.
On the other hand, the appeal of the dividend is deceiving. Mainly, Alvopetro cut it from 14 to 9 cents earlier this month. That still leaves a yield of nearly 12%. But it's also clear warning that it could be cut again, especially with income before taxes down -12.4% in 2023 and weak natural gas prices likely to pressure earnings again in 2024. This is a very small company (market cap $110 million) with erratic production and earnings history. We really prefer something more substantial, particularly since we believe this energy upcycle has a lot further to run.
 
 
Q. My question is in regard to Algonquin’s 7.75% preferred stock of 6/15/2024 (AQNU). Over the last few years you have suggested that in invested AQNU was a way to realize a good yield on your investment. Even Schwab indicates a 18% annual yield. But I am having a hard time understanding how this investment yields 18 +/- %. Can you give me help of how as to how I may be able to realize this type of yield on AQNU? I already own 700 shares of AQN
1:59
AQNU and am considering buying more. Are there any extra risks I should know about owning this preferred stock? Thank you for your assistance. Your Utility Investor is very helpful and I love your CHATS!—Dave S.
 
A. Hi Dave. Thank for those kind words. AQNU is a preferred stock that will convert to 3.333 common shares of Algonquin Power & Utilities (NYSE: AQN) on June 15, 2024. The preferred is basically priced to its conversion value in AQN stock, which has dropped sharply since the preferred was issued. The yield is that high because it's the annualized dividend based on the current price of AQNU and quarterly payments of 96.775 cents per share. But it won't last. In fact, the last dividend from the preferred will be paid in June at the conversion. 
 
At that time, our preferred will be swapped for the common shares, which right now yield about 7.1%--so the effective yield you'll receive post the conversion will drop as well. I'm planning to hold through the conversion because I believe the company is in
recovery mode--as I highlighted in the March issue "Aggressive Focus" section. And I think the common shares will eventually be worth north of $10.
 
 
Q. In September 2023 CUI, Clearway Energy (NYSE: CWEN) was your aggressive focus stock, then selling over $24. Now, under $21 and seemingly headed for lows of Oct 2023 and Mar 2020. Financials look OK. What gives ... any update? Is it just a matter that utilities generally remain down and out? TY—Joe W.
 
A. Hi Joe. Clearway’s earnings support the dividend and the company has reaffirmed an annual growth rate of 5-8%, with increases made quarterly. I highlight details of the earnings in the Utility Report Card of the March issue of Conrad’s Utility Investor, as well as guidance that remains quite positive.
I think the general investor disinterest in Clearway stock right now is due to (1) the fact that people are reassessing just when the Fed is going to pivot on interest rates, (2) disillusionment with the entire renewable energy space despite growth, which is for multiple reasons, and (3) the general negative momentum against the stock the past few years, which looks attractive to value investors like us but is most definitely not to many investors.
 
My view for a while has been that so long as this company keeps putting up solid business numbers--as it has to date--the stock will eventually recover. With Blackrock taking over Global Infrastructure Partners (50% owner of the general partner), it is certainly possible the GP will make a bid for the rest of Clearway it doesn't own in an attempt to get a discounted price. I think a bid would have to be at least the mid-20s.
2:00
But in any case, the growing yield of nearly 8% is a good reason to stick around, whether the company stays independent or is ultimately acquired. 
 
 
Q. Dear Roger/Elliot, Well, the EQT Corp (NYSE: EQT) buyout of Equitrans Midstream (NYSE: ETRN) looks like it will fall short of your low-teens/mid-teens price for ETRN. The announcement said, "Each outstanding share of Equitrans common stock will be exchanged for 0.3504 shares of EQT common stock, representing an implied value of $12.50 per Equitrans share based on the volume weighted average price of EQT common stock for the 30 days ending on March 8, 2024"
 
Does that mean that each ETRN share will in fact receive the equivalent of $12.50 in EQT stock at closing? Or might it be more or less? ETRN is now trading for less than that ($11.22). As a dividend investor and CUI+ subscriber, I am not much interested in EQT's rather meager yield. And as an energy investor and EIA subscriber, I already own a sizeable position in your previously preferred gas play,
Chesapeake Energy (NYSE: CHK). Any advice? What will you suggest CUI+ subscribers should do with their ETRN shares? I bought ETRNS at a low price, so my cap appreciation is about 18% at present. Many thanks—Jeffrey H.
 
 
A.Hi Jeffrey. Actually, I think this merger will wind up being worth considerably more than a mid-teens value per current Equitrans share. The deal as you note is in stock, which ties its value squarely to EQT's stock price and therefore to natural gas prices--and it will rise and fall with it. But at a price of $45, which EQT held as recently as early November, the deal value is around $16 per current ETRN share.
 
EQT if anything has surprised on the upside with operating performance, cutting costs while raising output meaningfully the past year. So it's reasonable to say the stock has come down because of lower natural gas prices. And we expect the price declines to reverse later this year due to a combination of reduced North American output and rising underlying demand.
I’m currently advising holding ETRN through the close of the merger and have raised the highest recommended entry point to 12. My view is that EQT will be at a much higher level by the close, which in turn will push up the deal value and ETRN's price. The company will continue to pay the 15 cents per share dividend to that point, so no change in yield. And I think it's reasonable to expect three more payments for a Q4 close. It's also possible EQT will bump up its offer a bit.
 
After the close, I will assess whether or not we want to continue owning the EQT shares. The company's dividend does follow natural gas prices to a large extent. So if gas prices move higher as I expect, so should the payout. Very likely, however, I'll look to something else in the midstream sector with a higher yield.
 
 
Q. Hi Roger. I've followed your suggestion to park cash in Vanguard Federal Money Market (VMFXX) at times
and I've usually bought it in my TD Ameritrade, soon to be Schwab, brokerage account. I might be having a senior moment as I wonder whether I should be buying it in a Vanguard account instead to save some commission/fee. I appreciate, as always, your sage thoughts and comments re this matter. Thank you—Chuck B.
 
A. Hi Chuck. I don't think it really matters much. Schwab does have money market funds and may have a different policy about Vanguard funds. But I don't think there's any reason to do anything at this time than hold it in the Ameritrade/Schwab account.
 
I do think we've probably seen the peak in money fund yields for a while. VMFXX is still yielding around 5%. But keep in mind that if the Fed starts cutting, yields on short-term instruments that have been very high for a while are likely to come down, which will push the fund yield down as well.
 
 
Q. Is the merger a taxable event for Equitrans Midstream stockholders?—Monroe J.
 
A. Hi Monroe. It’s a non-taxable event. The reasons are (1) the offer
2:01
is wholly in stock with no cash component and (2) neither Equitrans nor its would-be acquirer EQT are MLPs.
 
Q. Roger, a couple of questions:
 
1. Are you more of a fan now of Delek Logistics Partners (NYSE: DKL) with its lower price and better balance sheet after the recent stock offering?
 
2. I started to acquire some BCE (TSX: BCE, NYSE: BCE) shares recently as it seems like a solid company with an 8%+ dividend yield that seems too good to be true. What is the market worried about that it is trading at these levels?
 
3. Good to see investors respond positively to Dominion Energy’s (NYSE: D) future plans. But how did we get to the point where that stock has been effectively dead weight for so long. They operate in a great territory and have good relations with regulators, but have been horrible performers in recent years. Hopefully the next ten years will be better than the last ten.
Thank you for all your guidance over the years.--Rick P
 
A. Hi Rick
 
Delek Logistics is looking interesting for yield, now that the equity offering has (predictably) hit the share price. I do note that they're also having to issue $650 million of notes due 2029 yielding 8.625% to retire senior notes due 2025 yielding just 6.75%--which does imply they still face balance sheet pressure. And in fact their credit ratings are well below investment grade (B1 at Moody's), though all three raters consider the outlook "stable." The company managed only a very modest 3.4% total dividend increase over the past year--which is the result of the need to hold in cash to pay down debt. And dividend coverage is less than the high quality midstream companies we recommend in the 1.3 to 1.4 range. 
 
The company does have a lot of assets in Texas, which I think ultimately means it will be taken over by a stronger midstream that can fix the balance sheet—possibly Energy Transfer LP. But at this point, our preference is the
2:02
midstream companies in the Model Portfolio--and for yield, what's on the High Yield Energy List. This is one we do track and could upgrade at some point for aggressive investors.
 
I think BCE has retreated this year for a couple reasons. One, they've scaled back dividend growth a bit to hold in more cash to cut debt. The company has also clearly indicated now that debt reduction is a priority with the buildout of 5G and fiber broadband largely completed. But both Moody's and S&P now have the credit rating outlook as "negative," citing challenges to cutting debt.
 
The other reason is the company now has very conservative guidance for 2024, which assumes both a market slowdown in Canada and intensifying competition. Again, I think this too is well priced into the stock at its current level. But I'll be very interested in what management reports for Q1 on May 2 as well as how results are tracking guidance.
 
I think there's a lot of room here for an upside surprise.
And I think the high yield overstates the actual risk. But until there are more (and better) numbers, the stock is likely to be range bound here in the 30s. Also remember BCE is priced in and pays dividends in Canadian dollars--and the loony has been relatively weak this year so far against the US dollar.
 
As for Dominion, I think the strategic review's results put the company in a good place to recover. But it's certainly fair to ask how it got into this position. In my view, it was several things. First, they made a big bet in the previous decade that they could build the Atlantic Coast Pipeline, linking very cheap Appalachian natural gas to energy hungry markets in Virginia and North Carolina. And the project fell prey to extremely well financed opponents' courtroom tactics.
 
Given it took an act of Congress--and Senator Joe Manchin (D-WVA) being in the right place at the right time--to get the Mountain Valley Pipeline to the finish line, I think Dominion would have lost even more money had they not
pulled the plug then. But the damage was essentially done. And since then, everything has been about cutting debt--a task made all the more difficult by rising interest rates.
 
The Trump administration's changes to the tax code also hurt, by making parent level debt Dominion relied on to buy the former SCANA far more expensive to utilities. And finally, Virginia politics became uncharacteristically volatile for about a five-year period, forcing the company to do some zig-zagging as first Democrats, then Republicans and now Democrats tried to put their mark on energy policy.
 
Management has continued to execute in the core utility business. That includes progress on the Coastal Virginia Offshore Wind project, which has stayed on schedule and budget even as projects up and down the Atlantic Coast have been cancelled. Where the company failed was being caught out financially by energy politics. I think it's now in the right place, having reached an accord with regulators particularly in Virginia but also South
Carolina. And that more than anything else is reason to expect a recovery in earnings and the stock--and within the next 2-3 years a return to robust dividend growth.
 
Q. Roger: Thanks for your investment suggestions! But who is “Nate Conrad from New Energy Future.”—Dave S.
 
A. Hi Dave. Nate’s my son. You may remember he's done research for Capitalist Times in the past. I encouraged him to write about his experiences in the rooftop solar business on Substack--and that's what he's doing now.
 
I would also like to invite everyone on this chat to sign up for my Substack column “Dividends with Roger Conrad,” as well as Elliott’s and Nate’s. It’s
2:03
open access so all it costs is your email. I publish mine every Sunday around 12:15 pm.
 
Q. Hi Roger. The article linked below is a discussion of Dominion Energy’s (NYSE: D) and Santee Cooper’s plans to build a new gas fired power plant. The article appeared in the paper on Sunday, March 24th. As one would expect based on the failed nuclear project some years back, there is quite a bit of skepticism regarding the utilities’ competence to pull this off. As the article mentions the SC rate base is growing rapidly down here no doubt due to expats such as myself coming down from the Northeast.
 
One question I would ask is where would D come up with the money to fund a natural gas-powered facility in the context of their offshore wind boondoggle? I’ve not seen you address this topic regarding your discussions toward D’s prospects going forward. Maybe you can raise this with management at the next broker’s call. I’m still mad at them for selling their midstream assets to Buffet. Anyway, I hope you find this
article useful. Kind regards. Jim C.
 
PS: Like you I am a Dominion rate payer for both gas and electric. So, I’m paying for the failed nuclear project.
 
https://www.postandcourier.com/news/special_reports/dominion-santee-co...
 
A. Hi Jim
 
Thanks for sending the link to the story. Much appreciated. As you know, the failed Summer nuclear project predates Dominion's ownership of SCANA, though they've definitely had to deal with the fallout from regulators, politicians and customers. Of course, they knew what they were in for. And results at the unit have been generally solid--growing rate base and earnings that have definitely helped steady the company ship overall.
2:04
Like you, I have questions about this project, which I would add was not highlighted in the company's presentation on its strategic review. Dominion does anticipate spending $5.9 billion on its South Carolina system through 2029. And includes $2.6 billion on new generation, with $200 million on "nuclear" presumably for upgrades of the operating Summer units.
 
There's no mention of spending on a new natural gas pipeline. And I very much doubt Dominion would devote any capital to that business. If a pipeline were permitted, the utility could build and operate the power plant feeding off it. But until/unless a pipeline was in place, I would expect to see the company focus most on solar--which can still be ramped up substantially in the state without any reliability issues. And it can be planned, sited permitted, funded and built inside of a year--as opposed to many years as would be the case with a natural gas project.
 
As for whether Dominion could afford to build a natural gas plant in South Carolina,
the answer is definitely yes--but only if state regulators were in support. Demand for electricity is growing rapidly in South Carolina. And the utility is responsible for ensuring affordable supply. But the priority at the company is cutting debt and they're just not going to take this risk without a lot of assurances.
 
I would also say that the Coastal Virginia Offshore Wind project has not yet reached the level of a boondoggle. It could be eventually. But even as other projects have failed, the LCOE (levelized cost of energy) of CVOW the project has actually dropped since regulators signed off on it in summer 2022.
 
At this point, the company has locked in 92% plus of costs, with the rest heavily reserved. And it has a very deep-pocketed partner in Stonepeak to share overruns as much as 20% above current cost estimates. The key date in my view is delivery of the company's construction ship Charybdis by the "late 2024/early 2025" target date
But if that’s made, cost projections will be pretty firm. And the company's earnings and stock price recovery should reach another level.
 
Q. Roger. Because I had never had a 60/40 balanced portfolio (bond yields were so bad I never went there until now) and I am retired, I have been actively swapping out of stocks and into bond and bond equivalents aggressively. 
 
I have had a very large position in Entergy Corp (NYSE: ETR), thanks to your coaching, which has done well over the last decade plus and helped to provide me with retirement income. To get to my 40% fixed income have purchased approximately equal amounts of: 
 
Investment Grade Corp Bonds
Exchange Traded Debt (ENO is Entergy New Orleans Jr. Debt)
Preferred Stocks
Closed end funds
Bond Funds 
 
This has created a very steady cash flow. Your current issue where you discussed ETR and its New Orleans unit slapped me in the face:
"Dealing with the devastation left by powerful storms is certainly nothing new to utilities serving the US Gulf Coast, Florida and the Atlantic Coast. For example, in the wake of Hurricane Katrina in 2005 Entergy Corp (NYSE: ETR) was forced to put its New Orleans unit into bankruptcy, as it worked to restore service. " I take this to mean ENO would have defaulted on its Jr. Debt? ENO is the highest yield Jr. debt under ETR and now I understand why.
 
I was suffering under the impression that Utilities like ETR and Southern Company (NYSE: SO), Duke Energy (NYSE: DUK) and Sempra Energy (NYSE: SRE)—I also own so Ga. Power JR. Debt—would not suffer the embarrassment of failing to service its debt (Senior or Jr. ) from a corporate level to save face no matter what Katrina did to New Orleans.
 
The question: Would I have potentially lost my principle in ENO since it is unit-based debt and not corporate debt? If so, I need to bail out and select a safer alternative for my conservative bond positions and go into
2:05
something like Sempra Jr. debt, SREA, which appears to be issued at the corporate level and not the unit level. Fyi, I find all my fixed income investments on Quantumonline. Thanks—Gary J.
|
A. Hi Gary
 
Honestly, I don’t think you have anything to worry about Entergy debt from a credit risk standpoint. Not only is the company very healthy, including its New Orleans unit. But there is a happy ending to the Entergy New Orleans story post-Katrina.
 
Mainly, bondholders were made completely whole when the system was restored in the months following the hurricane--including all interest due. Management's intent was always to make good on its debt. But given the devastation from Katrina, they needed space from creditors to bring things back on line. And putting ENO into Chapter 11 temporarily did that. The company's other units continued to function normally, including what was then an extensive non-regulated nuclear power plant portfolio. And they were able to devote the needed resources as a result.
I used Entergy as an example to illustrate that companies with multiple utility units like Xcel Energy (NYSE: XEL) could if forced take a similar route in the aftermath of catastrophic wildfires. The company's Southwestern Public Service unit where this year’s Smokehouse Fire took place contributes 17% of rate base. So theoretically, were the courts to grant wildfire victims the size of the awards they have in the PacifiCorp/Berkshire Hathaway (NYSE: BRK/B) cases, the company could put SPS into bankruptcy, and force plaintiff lawyers to come to the negotiating table. 
 
Of course, everyone knows the utility has this "nuclear option." And that makes it far less likely it will ever be used. Rather, I look for Texas—as well as other wildfire prone states—to enact legislation that establishes a clear framework for wildfire litigation in a way that keeps utilities whole that follow best practices, and thereby encourages the kind of investment needed to prevent wildfires in the first place.
I do have a problem with those ENO bonds--mainly their very long duration maturing in 42 years. That's going to make them very vulnerable to future interest rate increases and inflation. And while I think the Fed's current course will bring down near-term inflation this year, it's also discouraging investment in supply for housing, energy and other key areas, which in turn will drive future inflation.
 
Entergy's longest-term debt (maturing 2066) is both "first lien" and "secured," That means if there ever were a bankruptcy, these bonds will be first in line to get paid. On the other hand, they yield just 5.2% to maturity--or only about 24 basis points more than Entergy's bonds maturing in October 2026. That's a lot of duration risk for not much yield. And it's why I prefer near term utility bonds at this time.
2:18
Roger-
Question you can answer on the web chat:
Given the EQT/Equitrans deal, how does this affect your thinking about NEP? Is your thinking evolving about NEP or are you as positive on the long term. I have a good sized investment in NEP (dividend play) and about half as big an investment in NEE (long term growth play) so I’m interested!

G.

Gary R. 
2:19
Hi Gary

The opening of the Mountain Valley Pipeline--and the opportunity to afterwards sell its 30% ownership--should be a sizable plus for NextEra Energy (NYSE: NEE) the parent. And by extension, that's positive for NextEra Energy Partners (NYSE: NEP) the affiliate in a couple of ways.

First, the proceeds provide more fuel for financing NextEra Energy's unregulated solar, onshore wind and energy storage expansion across the country, thereby increasing the pool of potential drop down assets for NEP. Second, it boosts the balance sheet at NEE, which should allow them to stay patient with NEP until market conditions allow it to once again become a good financing option for the overall company. 

The key for NEP is to again be able to raise capital on economic terms by 2027, when a large amount of convertible debt used to finance previous acquisitions starts to mature. My view is markets are also starting to loosen up. For one thing, NEP's notes maturing January 2029 are now trading at a premium to par and a y
yield to maturity of just 6.58%. That bodes well for refinancing this year's maturities--as well as Partners' modest CAPEX of repowering several operating onshore wind facilities. 

NextEra Energy and NextEra Energy Partners are expected to report Q1 results and update guidance on April 25. And we should get a much better idea of how things are evolving at that point. But getting MVP on line is a big positive for the company. And the Equitrans/EQT merger makes it a lot more likely in my view that EQT will wind up buying the whole pipeline--as they've already locked up 75% of its available shipping capacity in long-term contracts.
2:20
That was one from the email. Now we'll get to some live ones.
Jack A
2:23
Hi Elliott:

XOM is approaching a recent high again in the upper teens and low 120 range. In the past, when it reached that point, it has disappointingly cycled down again. Do you see it going higher than 120? Do you suggest we take some money off the table at that point?

Thank you for your good call on the refiners, right before their recent strong advance. Valero seems to be stalling at the 170 range. Same questions: Do you see it going higher, and should we take some profits at approximately the170 level?

Thanks
AvatarElliott Gue
2:23
XOM is basically a reflection of the S&P 500 Energy Index, which it dominates -- XOM and CVX are about 40% of the index. So, I think the trading pattern in XOM simply reflects shifting sentiment around the sector as a whole since late 2022.

Generally, there was a good deal of excitement around energy in 2022 due to the jump in oil/natgas prices that year -- S&P 500 Energy was the top-performing sector in the index that year +65.4% and it was one of only two groups that managed to close higher.

My view is that the supercycle in energy is still underway -- Energy is actually still  far and away the market's top-performing sector since the end of 2020 +186.2% vs S&P 500 +47% and Tech +71.7%. 2023 was simply a consolidation/basing year in the context of a multi-year rally underway since the 2020 lows.

Long story short, I expect quality energy names to break above their highs of the last 12 months eventually and I see considerable upside beyond that.

VLO I see worth $200+ later this year
Load More Messages
Connecting…