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
Prev Page View Full Chat Next Page
AvatarElliott Gue
2:23
based on the view that refining margins will remain elevated due to the loss of global capacity. I don't think it's at all unreasonable to think that XOM could rally to $150+ over the next 9 to 12 months as it's one of the only majors with real production growth.
Sohel
2:28
Hi Roger, Thanks for hosting these chats, I find them incredibly useful. One of the best ideas for an investment service. Is it better to sell AQNU now vs converting to AQN shares in a few months?
AvatarRoger Conrad
2:28
Hi Sohel. Thanks for those kind words and for joining us today. My view is we're best off planning to hold AQNU through the conversion. It's not a taxable event, as selling now would be. The dividend paid by the 3.333 common shares of AQN will be about 36 cents a share. That's meaningfully less than the 96.875 cents a share of AQNU pays. But it's still substantial--a yield of a bit less than 7%. And the real appeal here is with future capital gains. The results of the strategic review/sale of renewable energy assets aren't likely before the conversion. But expect they will the company's recovery in progress and should take the common to a price of 10 or so in the next 12-18 months. Admittedly, the strategic review has taken longer than I thought it would--in part because of interest rates. But I still think the utility side of this business shed of a lot of debt from asset sales will achieve a much higher price.
Jack A
2:43
Hi Elliott:

The price of natural gas has been disappointing, although recently some of the natural gas producers have been doing better (Chesapeake and EQT). Although there are supposed to be new LNG export terminals coming online at the end of this year, or early next year, will they be exporting enough to make a significant advance in the natural gas price? And how much of an impact do you expect it will have on the natural gas producers?

Thanks
AvatarElliott Gue
2:43
Natural gas is interesting in my view and it's one of the most misunderstood major commodities on the planet.

The way I look at it is that US natural gas prices actually bottomed last December, retested those lows in February and have experienced a rally since that time.

So, on 12/12/23 the front month price of gas (January 2024 futures) was $2.31 or so, and on February 19th the front month (March '24 futures) were more like $1.60.

A few days ago on March 26th, the front-month was again at 1.58.

However, the front month price of gas is largely irrelevant for producers, especially names like CHK/SWN and EQT that hedge a large portion of their near-term output.

Look at December 2024 futures -- they hit a low of 3.24/MMBtu in February and are now closer to $3.50 -- this is a comfortable level for most producers. And look at January 2025 -- the low was $3.54, now at $3.75.

And December 2025...$4.20/MMBtu.

That's why you're seeing the producer stocks rally even as the front-month futures look
AvatarElliott Gue
2:43
weak. One more point about all this is that the longer near-term gas prices remain depressed, the more bullish I'd be on names like CHK/EQT. That's because depressed front month prices have prompted companies like CHK/EQT to defer near term production/shut in wells. Over time, this means lower supply and tightening storage levels. The coming LNG supply wave is enough to support long-term gas prices in the $4/MMbtu range and, at those prices, most of the gas producers are roughly 50 to 70% undervalued at the current quotes even using the most conservative DCF valuation technique. However, the ideal set-up would be for gas storage to be hovering near average levels this coming November as we enter heating season.
Eric F.
2:44
Im up 30% on SPH Suburban Propane Partners, what has caused the current uptrend, would you hold on to it still at this level?

You hear that electric cars are the wave of the future, that Lithium is hard to mine and limited sources, and that wind and solar will need battery storage. But why then is LIT, ALB and others continue in a long down trend?
AvatarRoger Conrad
2:44
The uptrend for Suburban began in early October after a long period of consolidation for the stock. There was a brief spike in late December that quickly reversed. But generally, the stock has been moving higher for six months or so. I think there are a couple of probable reasons. One is investors are more comfortable with the high yield as long-term rates have moderated, despite the usual concerns about how revenue will be affected by weather. The other is the growing likelihood of a takeover of the company, which still has a market cap of just $1.3 bil. UGI Corp (NYSE: UGI) is currently conducting a strategic review that could put its Amerigas Propane unit in play--either as an acquirer or target. And Superior Plus is also looking to expand as well. I think Superior is probably fully priced at this point. And if FYQ2 earnings are disappointing, it will likely retreat--at least absent a takeover offer.

As for your question about lithium, you're correct that it's in demand. But the stocks are following
AvatarRoger Conrad
2:48
Continuing Eric's question, they're following a familiar pattern of a sector benefitting from a wave of hype--the LIT ETF went from under 20 to nearly 100 in a year and a half--but then cooling off as investors move on to another sector. It's basically how almost every other renewable energy focused stock/ETF has performed the last several years--surging in the early days of the Biden Administration and then selling off hard. Doesn't mean the better companies aren't in a good place long-term.
John C
2:53
Thoughts on refiner DINO would be most appreciated.
AvatarElliott Gue
2:53
We're bullish on refining margins and most of the refiners will benefit to an extent, including DINO. Right now, we favor VLO because of the company's strong US Gulf Coast exposure and rock-solid operation uptime. We also like MPC though we chose not to include it in the portfolio when we upgraded the group early this month because we already have significant exposure to MPC via their pipeline subsidiary. In some of our trading products we've been recommending PBF lately. California is in a bit of a pickle heading into summer as they've lost so much refining capacity in recent years they may be forced to import refined products from SE Asia and those refined product tanker rates are sky-high. PBF is now the second largest CA refiner behind CVX and so their margins could spike. It's a little bit more speculative story which is why we've focused on it in trading products.
Sohel
2:56
Hi Elliot, VLO has moved up quite a bit in line with your bullish comments. Do you have a price at which you would consider to be overpriced?
AvatarElliott Gue
2:56
I think it's worth more than $200 at a mid-cycle valuation target. This summer could be "interesting" for the refiners in terms of margin spikes and, by extension, consumers looking to fill the tank. I don't think the market fully appreciates the magnitude of refining capacity that's come offline in the past few years and it's just not fully discounted in stocks like VLO.
James G.
3:01
I have a query about MDU. It has been rising incrementally over the past few weeks. Its recent affirmation of 2024 numbers may have provided a spark, but I am wondering whether some of the buying might be due to the upcoming spinoff of its construction services unit. MDU's last spin (KNF) turned out to be highly profitable for MDU holders, and it could be that those who missed the boat on MDU/KNF-MDU was static ahead of the KNF spin-want to be on the boat for the upcoming spin. I'd like Roger's opinion on my premise.

Also, just a short commentary-NEE has broken $60 and technicals look good. Thanks for pounding the table on NEE when it was wallowing in the high $40s-I held my nose and established a position-added to it in the mid $50s-your call on NEE was absolutely prescient!
AvatarRoger Conrad
3:01
Hi James. I'm glad NextEra has worked out for you. I continue to believe this is the best in class solar/wind/storage play in America--the only company with comparable scale in this business outside of China, and strongly positioned with rights of way, transmission access etc to keep growing. I really thought and still believe people got way too bearish--and still are. And I look for a price back in the 80s at least this year. Even that FEC suit about lobbying has gone away due to lack of evidence.

I think you're correct that people are excited about another potential windfall from an MDU spinoff. And small wonder--the Knife River units received last spring are worth more than $20 per pre-split MDU share. And the construction services unit has obviously been similarly undervalued. I will revisit the highest rec entry point (now 24) for MDU when they update guidance in May.
Frank D
3:02
Venezuela passed a law this month that the Guyana oil region is a new state of theirs. Is this having an effect on Exxon Mobil stock price?
AvatarElliott Gue
3:02
It hasn't had a meaningful impact on XOM and, in our opinion it will not. It's part of a longstanding border dispute and the law was likely meant to stoke patriotism or sentiment domestically.

For one thing, Venezuela just cut a deal with the US that will allow it to export more oil to the US, its most logical market. The invasion of a neighboring country would probably irk (to put it mildly) the US and would likely result in new sanctions aimed at Caracas.
AvatarRoger Conrad
3:04
As for what to do with Knife River--I'm inclined to say stick with it for now. Materials have been strong and are likely to continue to be. This one could get a takeover offer as well. A price of $100 or more would tempt me to take some money off the table. But it looks like the momentum still has some room to run.
Rob P
3:15
Hello Roger,

As always thank you for your guidance and professionalism in this dynamic environment. I would like to know your opinion on Enphase Energy (Ticker: ENPH). Thank you
AvatarRoger Conrad
3:15
Hi Rob. I think Enphase is another good example of a renewable energy company with a great niche (microinverter-based solar and battery systems) with a stock that caught the massive pre-Biden presidency hype--and then proceeded to sell off along with everything else considered "green" once the infrastructure law and the Inflation Reduction Act passed. The company still makes a vital product and business is growing. But investors have also seen orders can be volatile, Q4 being a pretty good example. And trading at price of 36.8X expected next 12 months earnings, the stock is not cheap, even at barely one-third its late 2022 high point. I think if the company continues to grow, its stock will return to the upside--though maybe never to where it once was. And in the meantime, I prefer a steadier, dividend paying stock like NextEra Energy as a bet renewable stocks will eventually return to favor.
Sandy
3:23
Hi Roger,

Thanks for the chat. It's great to have the opportunity to ask burning questions. The REIT sheet lists GLPI as both aggressive and conservative. Has its status changed? A while back you mentioned selling ABBV at 180. Is it a sell or is it expected to go higher? Thanks.
AvatarRoger Conrad
3:23
Hi Sandy. Sorry about that. My thinking on Gaming and Leisure as a company and investment has been evolving. On the one hand, its six main tenants operate in the casino/resort business, and that can be quite cyclical. But on the other, the company's own business model of triple net leases on facilities run by these companies is not--revenue will steadily grow with inflation escalators in rents and when these casino operators add properties--such as the new sports facility to house MLB's Athletics in Las Vegas later this decade. My view is I will probably have GLPI as a conservative holding in the April REIT Sheet update later this month. It's a buy up to 55.

Thinking has also been evolving on Abbvie, as no doubt you've noticed in CUI Plus/CT Income commentary. The portfolio uses weightings to manage positions. And I have pared back our Abbvie incrementally as the stock has moved higher. I do think the momentum in the stock has been feeding on itself--and at the current price it's increasingly vulnerable
AvatarRoger Conrad
3:26
Continuing on Abbvie--I think the shares are increasingly vulnerable to a disappointment on sales of Humira, Rinvoq or Skyrizi especially when the company announces Q4 results in late April. I've said most recently that I may look to sell the rest of this position on a move to 200 or higher and that remains my view. And it appears a lot less likely we'll see a price close to my highest recommended entry point of 150 anytime soon. I do believe the company is moving in the right direction. The danger here is investors may be expecting too much too fast. And the higher it stock goes, the greater the chance of a reversal.
Frank
3:32
Uranium has made a nice move and supply looks to be tight going forward. Besides CCj are there any other ways to play this? I have been looking at UEC. Has no debt, reopening a mine this August and has a bunch of ore on the books at less than $50.
AvatarElliott Gue
3:32
Normally I am pretty cautious about using exchange traded funds (ETFs) to play energy-related themes. The problem is that they're usually dominated by 1 or 1 names and/or contain the good, the bad and the ugly of the sector you're trying to play.

For the large caps, we like CCJ for uranium. For the smaller/shakier names one thing we've recommended in the service -- I think we wrote up a detailed piece in November -- is the ETF URNJ, the Sprott Junior Uranium Miners (URNJ). URNJ  has pretty broad exposure to a number of "junior" uranium mining stocks (including UEC), many of which are traded on exchanges outside the US (Canada and Australia).
Jeffrey H.
3:37
Greetings Folks, A little while ago you mentioned that you might add KRP to your analysis. I know you like Blackstone Minerals, but KRP does not issue a K-1, which is appealing to some investors. It also has done a pretty good job of late of sustaining its dividend. Any thoughts on this company? Many Thanks
AvatarRoger Conrad
3:37
Hi Jeffrey. Kimbell has a high yield of around 11%. It is variable--the March payment was 43 cents versus 51 cents in December and 48 cents 12 months earlier. And that payment was roughly 75% of what it calls cash available for distribution--with management stating its intent to use 25% of CAD to retire debt. Debt interest expense was up 89% from the year earlier, so that's likely to remain a major priority. Blackstone, by contrast, does not carry debt--which greatly increases financial flexibility in the face of low natural gas prices. If natural gas prices perform as we expect, both KRP and BSM should move to higher ground while paying generous dividends this year. I do think there's a good chance both will declare a lower dividend mid-year, despite steady output on their lands. And that's good reason not to chase either at this time. And despite the K-1, we continue to favor BSM in this space.
Gerald L.
3:44
Gentlemen, where do you see long-term interest rates landing as the Fed begins decreasing rates this year? Do you anticipate the 20-year and 30-year treasury bonds still yielding over 4%, or as the yield curve adjusts, do you see the yields on longer-term bonds declining below 4%? Thank you for your insights.
AvatarRoger Conrad
3:44
Hi Gerald. One thing to remember about longer-term rates is they tend to track inflation expectations much more closely than short-term rates do. And we've already seen a big drop in both investment grade and junk bond yields since early October of last year. Shorter term rates, however, are much more in line with what the Federal Reserve does and as a result have not really moved down much if at all. That's why a company like utility Entergy Corp (NYSE: ETR) can have bonds maturing October 2066 yielding 5.21% to maturity, 30 bp less than its bonds maturing October 2024 (5.51%). If the Fed pivots and inflation expectations are dropping, long rates will likely fall further. But short rates are likely to drop a lot further. If it pivots while inflation expectations are rising, we may even see long rates go higher.
Tara S.
3:53
Some where along the way I missed out on how CUI plus got to 550 shares of Equitrans Midstream (NYSE: ETRN), I'm still at 250 shares, and adding another 300 shares at the recommended price of <$11 looks like swimming against a Rip current.

Please have a good day, and a better day tomorrow
AvatarRoger Conrad
3:53
Hi Tara. Sorry you didn't see the boost in position size. For future reference, I always mention portfolio changes in two places in the monthly updates: First in the overview commentary and again in the individual writeups of each position.

One thing CUI Plus/CT Income allows us to do is manage position size, which fits nicely with my view that positions are best built incrementally rather than all at once. We took our initial position in Equitrans last August. We were able to add to it subsequently to reach a full position that left it around 5% of the total portfolio, which currently constitutes a full position.

Going forward, ETRN is going to follow the value of EQT's current offer of 0.3504 shares per ETRN share. Our view is EQT is cheaply valued at this point after following the price of natural gas lower. And we expect a return to a mid-40s price, which would boost ETRN's offer value north of $16. Current advice per last Plus update for ETRN is buy at 12 or lower.
Anna K.
3:53
Hi Roger,
AvatarRoger Conrad
3:53
Hi Anna.
Anna K.
3:59
Hi Roger, How safe is  FRHLF dividend  Thank you for your insite.
AvatarRoger Conrad
3:59
Freehold Royalties Ltd's income is volatile, reflecting both changes in commodity prices (especially natural gas) as well as plans to third parties to drill on its lands to pay it royalties. Drilling tends to be more aggressive when prices are higher. And over the past year, the opposite has happened. The company did report some solid drilling action in Q4 and 2023, a testament to the high quality of its properties. And the monthly dividend or 9 cents Canadian was well covered--1.56 times in Q4 and 1.47X for the full year. That's good coverage. I don't think you can rule out weaker numbers this year, given where gas prices are. But management did say about a month ago that it expected to keep paying at the current rate. So bottom line is this dividend should not be considered safe as a utility's. But there's a very good chance it holds this year, particularly if gas prices recover.
Sohel
4:01
Hi Elliot, Thanks for holding these chats! What is your current outlook on the economy?  Is a recession still in the cards ... Mr Market seems to be forging ahead. Also, what is your outlook on interest rates?
AvatarElliott Gue
4:01
I still see some headwinds out there for the economy particularly with regards to the exhaustion of the Fed's reverse repo facility in the next 2 to 3 months and the federal government's immense, ongoing financing needs.

That said, the market remains strong and it's worth remembering that some of the strongest gains from a bull market cycle tend to come in the last 6 to 12 months of the rally.

So, we'll continue to try to take advantage of the the upside where we see it until there's a more imminent sign of distress such as rapid shift in the yield curve to a positive slope.

A couple of points to note. First, there has been a  marked recent shift in favor of sectors/styles groups that benefit from higher inflation -- Energy, materials and small caps. So, the market seems to be saying inflation isn't going away.

Second, my view on short term rates is that the Fed can't really hike due, in part, to the fact that the government's borrowing needs are so high they'll struggle to fund the debt once the RRP
AvatarElliott Gue
4:01
is exhausted without some potentially sizable declines in bank reserves. Rate cuts would, in essence, make it easier for the government to sell longer-term notes and bonds rather than the recent flurry of T-Bills. That's also probably why the Fed will want to cut even if the inflation data continues to come in hot. As for longer term yields -- I think we're likely to remain pretty much rangebound. In bonds I like the fallen angels (FALN is my favourite ETF there) and would prefer a specialty name like TLTW rather than  outright Treasuries via a fund like TLT.
Dave T.
4:06
Hi Roger – I’d be interested in your thoughts on Chord Energy Corp (CHRD) who as you know is in process of acquiring Enerplus (ERF). I have not previously heard of this company. Would you have an estimate of the valuation of CHRD, currently trading around $175? Would this company be considered a conservative or aggressive holding? Would you rate their business prospects post-acquisition as attractive? And finally, is Chord Energy a company that would fit into your coverage universe going forward? Thanks very much for all you do!
AvatarRoger Conrad
4:06
Hi Dave. Yes, we'll pick up Chord when the Enerplus deal is completed. I think the industrial logic of the deal makes sense, as it usually does in E&P when the result is greater scale in a particular reserve basin--in this case the Williston of the upper Midwest US. And the ratio of 0.10125 Chord shares plus $1.84 in cash means the bulk of ERF shareholders' return for holding through conversion will be stock in the combined company. It looks like the combination will get a credit ratings boost shortly after the close, with both S&P and Moody's changing Chord's credit rating outlook to positive. I would stick with ERF through the close.
Connecting…