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3/28/24 Capitalist Times Live Chat

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Hans

4:15

Elliott: What is your outlook for CF, it has not moved much and with a 2.4% dividend is this a hold or look for something better

Elliott Gue

4:15

CF makes nitrogen fertilizer using US natgas. So, in 2022 the stock got a huge boost as global gas prices (and coal prices) soared to levels that rendered much foreign fertilizer production uneconomic. The stock pulled back as that North American advantage tightened (though never eliminated).

The way I look at it is that CF has been basing since the end of 2022 under roughly the $88 region. Yet, the nitrogen market has been tightening -- 40% of Europe capacity still uneconomic and shuttered, China limiting exports strong demand from US/Brazil.

And, there's more upside to global natural gas/coal prices than to US natgas over the intermediate term -- CF's cost advantage isn't going away. Meanwhile even at current prices, CF generates copious free cash flow to deploy in dividends and (increasingly) share buybacks.

So, my view is that CF is likely to ultimately break above resistance at $88 and the stock could ultimately revisit the 2022 highs. I recommend continuing to hold it for now -- the summer corn

Elliott Gue

4:15

growing season is a potential catalyst to watch.

Donna R.

4:16

What are your thoughts on ARIS – water is precious resource and recycling for oil/gas production seems to be prudent way to service the industry. Is it too extended at this time?

Roger Conrad

4:16

Hi Donna. Effectively recycling frac water is a very big deal in the Permian Basin as producers look for ways to cut costs--importing water is a big one as is disposing of waste water, and recycling potentially resolves both. Two trends working against an independent operator like Aris (NYSE: ARIS) are (1) large companies are increasingly electing to bring this business in house--again to control costs and for the same reasons producers are buying midstream companies and (2) ownership of production in the Permian is rapidly consolidating again with Pioneer/ExxonMobil the biggest deal in progress. It's possible someone will want to acquire Aris--maybe ExxonMobil which is a major customer already. On the other hand, Pioneer has its own recycling operations, so maybe Exxon ends its Aris contract. Anyway, it's a company we could cover in EIA--though our top services stocks at this point are SLB and BKR.

Terry

4:26

VST has taken off like an AI stock, presumably because they have power (nuclear and renewable) to sell for data centers owned by major tech companies. What other utilities may be uniquely positioned to capitalize on this trend? For example, Arizona is a hotbed for data center development. Is PNW positioned to capitalize on that?
Thanks

Roger Conrad

4:26

Hi Terry. The best way to think of Vistra is a company in the mold of Constellation Energy and NRG Energy--combining wholesale market power generation and unregulated retail energy sales. Like CEG, it now has nuclear generation after acquiring Energy Harbor, though not as much. It also has more exposure to Texas, which is probably the best state to operate as such a business. When I first started to recommend this stock in the teens, I thought it was grossly undervalued. And its rapid climb does show how quickly momentum can shift in a stock market with an historical low of actual decision makers. We've seen the same action in NRG and CEG by the way. I think the next likely group to go would be companies like Brookfield Renewable and Clearway Energy--especially when enough people realize renewable energy isn't going away any more than natural gas, oil and nuclear are. And we see more people focus on rapid demand growth from AI adoption. Utilities with the biggest presence in ETFs will as well, like NEE.

Jimmy

4:28

Hi Elliott,

For EIA model portfolio, are you looking to add to positions now that it seems that energy shares are on the move up again? Maybe it's too late and we need to wait for a pullback as many have already ran away towards the top of their ranges? If yes, which positions are we looking to add?

Elliott Gue

4:28

Yes, we remain bullish on energy.

Late last year there was this idea out there that the global oil market would be oversupplied in early 2024, which drove down prices. That was fueled in part by the IEA, which published a series of monthly oil market reports predicting just that. There was also some chatter than US oil production was growing at an unsustainable pace and/or the Saudis would flood the market to protect market share. We've been saying for some time that view was incorrect -- US production growth was flattered by last year's M&A boom and a change in the way EIA calculates output, OPEC was likely to remain disciplined as the threat from shale is nothing like 2014 and the IEA (as usual) dramatically underestimated demand.

So the situation looks much better today and the market much tighter (IEA quietly recently upgraded their outlook). So stocks have recovered some of their drips from late last year.

However, out view is that oil is more likely to average $90+/bbl longer term and markets are

Elliott Gue

4:28

still a long way from discounting that. The way I look at it is that a bullish supercycle in energy started in 2020 and the group has been consolidating those gains since late 2022. What we're now seeing is the next wave of the cycle, so we see a lot of names hitting the top of their recent range or, in the case of companies like VLO, breaking out. We think that'll continue.We continue to look for opportunities to add as we did with VLO in early March. Natural gas is another still-underappreciated area that could see serious upside into 2025 as a new LNG boom kicks off.

Hans

4:31

Elliott: DVN, your article on DVN "Turnaround underway" with a target of $60 is this a buy?

Elliott Gue

4:31

DVN is a name I've been lukewarm on for a long while and it has underperformed. My view is that management has finally managed to put together a decent quarter and their guidance for 2024 suggests their issues in plays like the Bakken are fading. Not quite ready to add it to the Model Portfolio in EIA but it's a name I'm asked about a lot and my view is that it's turning around.

Philip B

4:32

Dear Roger & Elliot,

Following the spinoff at GE, are you planning to cover GE Vernova in CUI? If so, what is your current view on the stock?. Many thanks for your wise counsel over the years.

Roger Conrad

4:32

As an owner of GE, I will be personally receiving shares from this. I think it could be an interesting company and worth covering, though I generally like to see something trading for a while before adding it to say the Utility Report Card. It has been nice to see GE approach its old highs again--and with far less baggage than in decades past. For disclosure purposes, I plan to hold it for the time being.

Hans

4:33

Elliott: What is your outlook for RRC, hold or buy. Thanks

Elliott Gue

4:33

RRC is one of the two big natural gas liquids producers with acreage in the Marcellus Shale -- the other one is Antero. In my view RRC is the better company -- I wrote it up as a buy last August or September in EIA and I still like it.

Fred W.

4:44

Hi Roger and Elliot,
With PXD hitting a new high today, what are your latest thoughts regarding the upcoming takeover of PXD by XOM?

Should we consider selling PXD now, or, as you suggested perviously, waiting for the deal with XOM to close and receive the allotted shares of XOM?

Please explain your rationale.

Thanks to you both for your excellent advice that ou have provided over these many years

Elliott Gue

4:44

By may calculation when you buy PXD you're still getting XOM at a discounted price. For example, PXD closed today at 262.50 and XOM closed at $116.24. When the deal closes PXD holders get 2.3234 shares of XOM -- so that's $112.98 per XOM shares.

At the same time, XOM is our favourite major thanks to its superior production growth potential and we'd been considering adding some to XOM late last year when the deal is announced. SO, our inclination was to just accept the (slightly) discounted XOM shares when the PXD closes.

That's still our recommendation for now. We may consider changing that if PXD were to start to trade rich vs. XOM or if we preferred to, for example, free up some capital to another idea rather than allocating to XOM.

Sal P

5:01

Hi Elliott In reference to seeing a possible big upside to natural gas thru 2025 .Would you consider UNG a way to play that upside ?

Elliott Gue

5:01

No, I'd recommend avoiding ETFs like UNG and (even more so) BOIL like the Great Plague of 1665. They're OK if you're trading, but terrible for investors.

The reason is their construction. For UNG, the ETF buys a specific futures contract then rolls to a different contract according to a pre-set roll schedule. So, in this case, UNG is in the May 2024 futures right now and will roll to June 2024 futures in mid-April, then July in mid-May and so on.

So, when you buy UNG, you're not really buying into gas at current ultra-low prices of $1.75 or so, you're buying exposure to May gas at $1.75 for two weeks, then June gas trading at $2/MMBtu for a month after that, then July (now at $2.35).

It's like buying into a series of trades over time. If the market doesn't move at all over the next 9 months then front-month gas futures will be trading at $3.73, which is more than double the current front-month price. But if you buy UNG you won't benefit at all because the price of gas hasn't really rallied, it's just

Elliott Gue

5:01

the shift in calendar months over time. Let me give you a real world example -- front month gas was at $2 on April 13, 2023 (about a year ago) and it closed on December 12, 2023 at $2.31. UNG fell almost 30% over this period and BOIL was down a whopping 60.62%. You're much better in the producers in our view -- after all, the media narrative is that gas prices have "plummeted" since the mid January cold snap to multi-year lows. Yet, EQT is flat and CHK is up almost 8%.

Victor

5:07

Hello guys! SLB is finally trading above its 200MA. Do you expect this uptrend to continue? Thanks.

Elliott Gue

5:07

My view is that SLB has been in an uptrend -- really a wide uptrend channel since late 2020 and the most recent dip was sort of a bounce off the bottom of that channel. Over time, I expect SLB to trend higher and my target here remains $80 in the next 12 to 18 months.

Victor

5:12

Guys, CCJ has been recovering from a big drop last month. Do you expect this uptrend to continue?

Elliott Gue

5:12

Thanks for the question. I think the uranium story was due a bit of a rest -- spot uranium prices jumped over $100 and CCJ popped over $50 in February.

The pullback to $40 or so looks to have been a normal correction after CCJ's 90%+ rally in 2023.

I still don't think the uranium story is over though. Just meeting demand from existing reactors and restarts will mean providing an economic incentive to new supply, which probably means uranium at $90+. At those prices CCJ generates a lot of free cash flow over time.

Bill G.

5:14

Hello Roger: I read an article last week from the WSJ. It discussed a recent Energy Conference
in TX. According to the article various CEO that build Data Processing Centers were interviewing
Utility CEOs to determine what their current electricity status is right now and their plans for the future.
The goal being to determine where to Site future Data Centers. Are you on top of these discussions?
Is this knowledge useful now to decide new Utility Stock investments?
Or maybe not now, but in a year or two, when their decisions on siting new Data Centers becomes public.
With most Utilities planning for a Green future will this Cap growth and hinder Data Center growth?
Maybe you could dedicate a future issue to this subject. As usual thanks for all you do for subscribers.

Roger Conrad

5:14

Hi Bill. I believe you're referring to CERAWeek--which was held last week in Houston. It's a conference that's historically been mainly oil and gas players from around the world. But electricity, renewables etc have been a bigger part in recent years.

In the February CUI, I highlighted utilities' connection with AI--mainly powering data centers that have suddenly gone hyper scale and become power hogs. NextEra Energy's (NYSE: NEE) CEO John Ketchum highlighted a system it's developed to help companies locate data centers. And as I mentioned earlier in the chat, it has right of ways, transmission access and siting no other US player currently comes close to matching.

The demand represented by AI/data centers does mean a lot of investment is needed. And as I've pointed out in CUI as well as EIA, coal power plants are going to be open for longer as a result. But we're talking about contracts with corporate customers who favor renewables mainly because the costs are more predictable.

Victor

5:16

Hello Elliott, OXY seems to be closer to its upper range. It's been trading sideways for over a year. Do you think that we'll see a break out at some point before the end of this year? Warren Buffett is heavily invested on this stock and he buys more when it dips.

Elliott Gue

5:16

Yes that stock has been like watching paint dry for two years. That said, I like their purchase of CrownRock in December. While some complain they may have overpaid, there's only such much prime acreage in the Permian left. Also, Buffett isn't exactly know for making big, expensive splashy acquisitions of anything at inflated prices but he's supported the strategy. I thin k there may be more leverage in other names but I do think OXY ultimately resolves to the upside. And, I won't be surprised if their 2019 acquisition of Anadarko, widely panned for literally years, ends up looking like one of the savviest buys in history in the fullness of time.

Roger Conrad

5:16

Continuing with Bill's question, it looks like a lot of this business is going to be with renewable energy developers--of which NextEra has the pole position, with Brookfield and AES Corp taking a smaller US share but also international. But almost all electric utilities are also likely to see more demand, which will require more investment and thereby grow rate base, earnings and dividends. The key is going to be regulatory support.

5:17

I also want to again invite everyone in this chat to sign up for the Substack columns Elliott and I write. Last Sunday's topic for me was in fact CERAWeek insights.

Victor

5:20

Elliott, Do you see more upside on COP?

Elliott Gue

5:20

Yes, I see upside in COP. They're a quality operator in the Permian. They have some significant leverage ti longer-term upside in US gas prices too. They're a little on the conservative side and production upside isn't as impressive as a name like XOM in my view, so maybe more upside elsewhere. But a solid holding.

Sohel

5:23

Hi Roger, Could you explain your rationale for rating ET as aggressive despite all the progress they have made? I have a good sized position in EPD and a smaller position in ET - wondering if it's OK to make them similar sized? have similar sized positions in both or better to add to KMI or PAGP instead.

Roger Conrad

5:23

First, Energy Transfer LP is still my favorite midstream investment for 2024, as it was in 2023. I think it's investing in all the right places, whether they're able to extend the export permit for the Lake Charles LNG facility or not. The main reason iI would rate them more aggressive than say Enterprise is they still have a lot of debt. They've made huge progress liquidating. But they still have $53 bil or so outstanding, which is roughly equal to their current market cap.

On the other hand, as far as position sizing goes, the best way to reduce risk is diversification and balance. And my top pick this year in midstream is ET. So I would definitely recommend an equal position. Alternatively, we do offer weightings in our EIA Model Portfolio

John C

5:26

Buy price limit and thoughts on MPC please.

Elliott Gue

5:26

We like MPC -- we wrote up the positive refining story back in early March in EIA and nothing has changed. The main reason we didn't add it to the model alongside VLO is that we already have exposure in the model to Marathon via MPLX. I believe the last time we published a buy under price for MPC it was $180 though the stock has jumped over that in the last two weeks.

Bonnie Beth

5:29

Hi Roger, I missed you on the Money Show! I’m so upset that I did not see your live presentation. Do you have a recording that you can e-mail to me? Or is there a recording on YouTube or on the Money Show site? I am very interested in what you discussed, especially AI. Please let me know where I can access the recording, if you have one. Thanks so much.

Roger Conrad

5:29

Hi Bonny Beth. Thanks so much for your interest in that. That's a very good question and unfortunately I don't know the answer to it. I can offer you a copy of my slides--and the presentation does follow them. Please send me an email after the chat.

Also, I will be doing these on a regular basis, as will Elliott. So we'll look into what sort of link is available. You can also call Sherry at 877-302-0749 anytime 9-5 ET, Monday through Friday.

Sohel

5:36

Hi Roger, What is your outlook on HASI, NEP at current prices? Sell now in anticipation of recessionary decline or hold on?

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