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3/28/24 Capitalist Times Live Chat

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Elliott Gue

7:03

Permian was solid operationally. North Sea (sadly) is a problem area due to the UK government's tax regime discouraging investment. I thought their 2024 guidance was light and they've been plagued by a number of operational issues in recent quarters. We're continually reevaluating the E&Ps -- I'm more constructive on DVN of late -- but APA is still a question mark in my mind.

Don

7:04

What utilities stand to benefit from the increase in nuclear powered data centers? I saw something yesterday that called out PEG, NRG, Vistra and Constellation

Roger Conrad

7:04

Hi Don. All that we've seen so far here is one company announcing they will locate a data center near the Susquehanna nuclear plant in Pennsylvania--so I think people may be getting a little ahead of themselves. There's sound industrial logic here--Nuclear plants run all the time at very steady costs. And to the extent data center companies can contract spare capacity, it's a big win--since they can potentially lock in the price of their most essential input, electricity. The challenge will be grid operators and regulators allowing them to lock in nuclear generating capacity at a time when it could be in shortage--precisely because of data center demand. And though everyone wants to believe in new nuclear (myself included), almost all of the generating capacity data centers are contracting for right now is renewables--because they don't rely on volatile priced fossil fuels and because they can be sited, permitted, financed and built within a year, which matches the timetable for data center planning.

Roger Conrad

7:05

Continuing with Don's question--I think data center demand is definitely good for anyone in the power business, especially those focused on wholesale like Constellation, Vistra, NRG and Public Service Enterprise through its unregulated unit. It's also bullish for all utilities as well as renewable energy suppliers. BTW, NRG no longer owns nuclear, having sold its Texas facility to Constellation last year.

Guest

7:06

Earlier today you mention TLTW and recommended a buy on it. I subscribe to CUI and EIA for years and don't recall mention of this in the past. As an income investor is this something I should consider. I've taken your advice and own several of your MLP recommendations and your Utilities and they have paid off well in dividends and recently in upside.

Elliott Gue

7:06

I recommend TLTW in my Creating Wealth portfolio service -- I have been adding a handful of bond ETFs to my coverage universe of late as, for the first time in (literally) about 20 years the yields on bonds are worthwhile. I did write a little more about it on it on my Substack that's available for free here: https://open.substack.com/pub/freemarketspeculator/p/bond-etf-q-and-a?...

7:08

Roger, Do you think Dorchester or Sitio oil & gas royalty stocks are good buys compared to KRP?

Roger Conrad

7:08

Hi Ed. I think almost all royalty trusts are going to benefit from a recovery in natural gas prices--with the caveat that most are likely to pay out less at least temporarily due to the slump in gas prices this year. I like Blackstone (BSM) because it has no debt and has been consistently growing production. We do track Dorchester in our MLPs and Midstream coverage universe and currently rate it a hold.

Bonnie Beth

7:11

NNN

Roger Conrad

7:11

I think NNN is undervalued, as are many shopping mall REITs. In fact, most of these stocks are currently pricing in a recession at current levels, despite three years of cost cutting and scale building since the pandemic year of 2020. And it's also likely a lot of investors are just lumping them in with office properties, where there is a real contraction going on. But NNN continues to grow with record occupancy and I expect another solid dividend increase this summer. Still a buy at 50 or less.

Aaron S.

7:16

Dear Roger, I am a happy subscriber to your CUI plus, the Utility newsletter, and the REIT sheet. I have a question about Xcel energy.The company has admitted to their part
in the Texas Smokehouse fires. Is the dividend safe ? Buy-Sell-Hold ???

Roger Conrad

7:16

Hi Aaron. There's always uncertainty where the courts are potentially involved. And as I pointed out earlier in the chat, juries have granted some pretty crazy awards in the PacifiCorp case--which prompted Warren Buffett to explode in Berkshire's annual letter to shareholders. But in Xcel's case, the unit operating where Smokehouse occurred is only 17% of rate base--so the company has a nuclear option of putting the unit in bankruptcy and forcing everyone to come to the table. And it could continue its dividend under that scenario. I don't think it will go that far--I expect Texas to pass legislation that not only clarifies wildfire liability for utilities that are following best practices, but actually promotes faster investment in grid hardening as we've seen in California. It's not in the portfolio at this point. But I do rate Xcel a buy at 70 or less.

Fred W.

7:20

Hi Roger,

I know you did a brief analysis of the probate upcoming merger of ETRN and EQT.

In your opinion, which of the two companies will realize the largest capital gains in stock price in the near term and, over the next few years?

Per your info in yesterday’s Newsletter, I realize there is a chance that a deal may not go through due to Government interference.

Would appreciate any updated info that you may provide on this possible merger, timing, etc.

Roger Conrad

7:20

Hi Fred. I think Equitrans is going to closely track its takeover value in EQT stock until this deal closes, which I think is highly probable. And to the extent it trades for less than takeover value, that will be additional upside for ETRN. I also think EQT is headed higher along with natural gas prices, and as investors eventually price in this deal's compelling industry logic.

I'm sorry if my comments in EIA made it seem like I thought it probable the government would seriously challenge this deal. Until it clear the waiting period for anti-trust, that's certainly possible. And my point is other would be acquiring producers may hold off on making deals until we see what regulators do. But my view is this deal is compelling. And I'm willing to bet on it in CUI Plus/CT Income with our position in Equitrans.

Bill W.

7:25

BCE pays a nice dividend but the stock is worth less than it was 10 years ago and is setting 52-week lows. Stick with it or move on?

Roger Conrad

7:25

Hi Bill. BCE actually has a 10-year total return of about 52%--not great but nonetheless positive. There are obviously some headwinds now--relatively weak guidance for 2024 on the premise of tough competition cutting into revenue more than 5G and fiber are increasing it, a recent adverse Canadian regulatory decision that induced management to pull back on fiber investment and the interest rate environment are three. And credit raters S&P and Moody's now rate its outlook negative for those reasons. But the dividend is well covered with earnings and free cash flow, CAPEX has peaked for the cycle and the stock is priced for basically a worst case. I think we stick with it.

Robert N

7:29

Hello Roger, I have noticed that Artis Real Estate Investment Trust (ARESF) is near bottom and wanted to get your opinion on it as a good entry.

Roger Conrad

7:29

Hi Robert. I still cover Artis in the REIT Sheet. But I have not rated it buy for some time. It's best considered a managed portfolio of assets at this point, rather than a long-term landlord. And that means the dividend should be considered volatile as well. They've been hurt by heavy office exposure in this environment and I'm just not seeing a lot of upside catalyts at this time. If you're interested in taking a look at REIT Sheet, please call Sherry anytime Monday-Friday, 9-5 pm ET at 877-302-0749.

Roy W.

7:34

Thank you for your strong recommendation of Vistra in the past. I was fortunate enough to buy in the teens, and recently sold a portion when it crossed 70. How vigorously do you recommend pruning a position in Vistra? It certainly looks like momentum players have pushed up the stock's price, and of course they will leave, sooner of later. On the other hand, management seems highly competent, earnings seem to be on an upward trajectory, and traditional valuation measures, such as PE, remain reasonable.

Roger Conrad

7:34

You're welcome. Glad it worked for you. It did take a while for the stock to pan out, though the company was consistently executing its strategy. And that's worth remembering when looking at some of the stocks we have that haven't performed nearly as well yet, despite very strong and growing businesses.

I think the decision of pruning is very much an individual one--so I hesitate to give a one size fits all answer. I think the way to think about it is balance--if a particular stock becomes such a big part of your portfolio that a setback to more representative level of valuation would trigger a substantial loss, then that's the time to lighten up, I think that's where we are with Vistra Energy--which is very much executing but yes like CEG and NRG is getting carried away by momentum that could shift.

James C.

7:37

own BIPC & know you recommend BEP & BEPC. Pls explain difference in Brookfield companies. Thank you

Roger Conrad

7:37

Basically, BEPC is a C-Corp share for Brookfield Renewable, which mainly trades as an MLP under the symbol BEP--same company, same ownership for both type of share and same dividend as well. The difference is one sends a K-1 and is tax advantaged (BEP) and the other is a corporation BEPC.

BIPC is a separate company entirely, the C-Corp share for Brookfield Infrastructure Partners (BIP). I prefer BEP/BEPC to BIP/BIPC because it's focused on energy, while BIP is widely diversified over multiple sectors and has no scale advantages.

Bonnie Beth

7:39

Hi Roger, Are there any utilities or REITS that are selling at or close to your dream prices right now that you can recommend as buys? (I cannot log in to the newsletters as I am traveling). I was thinking of adding more money to NNN. Also, I wrote earlier that I missed the Money Show and would love to see your presentation on AI that I missed. Is there a recording available? Thank you so much for all your excellent guidance which has been so helpful to us in our retirement.

Roger Conrad

7:39

Hi Bonnie Beth. Thank you for joining us while traveling. Like I said, send me an email when you can and I'll send on my slides from the MoneyShow presentation. As far as companies trading near Dream Buys, the renewable energy focused producers and companies are right there: BEP/BEPC, AES are two.

Sohel

7:40

HI Roger, Apologize if this is a dupe, not sure it took the first time. Is ET still considered Aggressive? I am trying to decide between adding funds to my already larger EPD position vs smaller ET position. ET has higher distribution yield and seems to have higher prospects for price appreciation.

Roger Conrad

7:40

I did answer. Bottom line is they still have total debt about equal to market cap. But Energy Transfer is still my favorite midstream stock for 2024, as it was in 2023 to good effect.

Randy D

7:43

Hello to both of you, and by the way I enjoyed hearing Elliott on Chuck Jaffe's Money Life podcast. In the MLP space, I currently have positions in MPLX, WES, EPD, ET, and BEP. Considering the most of these are up around a 52-week high, do you still think I should be putting new money in these five MLPs or should I diversify into one or two others? I'm down to these five positions because some of my other ones got bought out in the last year.

Roger Conrad

7:43

Diversification is always preferred in my view. I would take a looks at Hess Midstream--which is growing rapidly on its own and is a takeover target as well. The Canadians are also not as bid up as the US midstreams, including TC Energy (NYSE: TRP) and Pembina Pipeline (TSX: PPL, NYSE: PBA)--still like the ones you own though and think they're headed a lot higher.

Guest

7:50

Hi Roger: Sorry. I am still confused. In your CUI+ on 3/22/24 you advised us that Blackrock's merger with GIP has put some investors on edge. Can you explain to us why Blackrock would merge with GIP if they would stop the drop downs for Clearway? Is it common that "unloved" assets in a merger get sold/disposed of later on? Kind of like AY's relationship with AQN maybe? Thanks for clearing this up for us readers!

Roger Conrad

7:50

My only point is we don't know what post-merger Blackrock/Global Infrastructure Partners' priorities are going to be. If they have a truly long view, they will want to be patient for Clearway Energy to be able to take drop downs--so they can finance continuing growth at Clearway Group. If they decide they don't want to be in the renewable energy business anymore, they may sell Clearway Group, which would effectively leave Clearway Energy in the hands of another sponsor. TotalEnergies obviously has a say here as the other 50% owner of Clearway Group--and it could well elect to buy in the rest as a vehicle to handle its renewable energy investment in North America. And it has bought 70% plus of SunPower, the residential solar company so that may be a possibility.

The larger point with Clearway though--as it is with Atlantica--is that this is still a stock backed by a strong business with heavily contracted assets. And whatever the machinations of the parents/sponsors, we should wind up making money.

Guest

7:53

Hi Roger: Similar question re ETRN discussion in your last issue of CUI+. Why do investors "assign very little value" to MVP? Thanks. Barry

Roger Conrad

7:53

Hi Barry. I think it's clearly because the pipeline (1) Hasn't opened yet after scheduling has been repeatedly pushed back and (2) Costs have continued to rise for the owners the longer opening has been delayed. Until MVP does actually open, there's going to be risk of further delays and higher costs. And that's going to deter investors from assigning value to MVP as an asset.

Guest

7:58

Roger: Was ET's $30+ value per share for the 2 years in 2014 and 2015 just an aberration? What realistically can we investors expect for a long term value for ET now that it has exceed your buy-ceiling of $15/share? Thanks.

Roger Conrad

7:58

I think Energy Transfer hitting that level in 2014-15 was clearly due to midstream stocks and their yields being extremely popular with investors. I remember the sentiment from the era well. And I can tell you with complete assurance, what you're seeing now is no where close.

I can't give you a guarantee ET will break 30 as I think it will. But I can say, you have a company that covers an 8% yield with distributable cash flow by roughly 2-to-1--and generates free cash flow to cover all CAPEX and dividends with enough left over to pay off a big chunk of debt every year. And that's while being one of the more aggressive acquirers and integrators of assets, and growing the dividend 3-5% a year--and boasting an investment grade credit rating. That's the value proposition and I think its compelling.

Victor

8:00

Elliott, what is you opinion on WES. A month ago it jumped like 20% and it's been moving up.

Roger Conrad

8:00

Hi Victor. I answered a question about Western Midstream earlier in the chat. It's also highlighted in the current EiA issue as a buy up 35. The dividend increase is sustainable and I think there's likelihood it will be in play as a takeover target--as Occidental either buys it in or sells.

Arnold P

8:01

Any thoughts on Cheniere Energy Partners L.P. (NYSE:CQP) ? Would you consider it a buy at these levels?

Roger Conrad

8:01

Hi Arnold. I highlight Cheniere in the EIA issue we just posted. I think it is still a value up to 55 despite the lower announced dividend for 2024.

Joe T

8:01

Hi Roger - I looked up Clearway Energy ad there different stock classes. Which do you recomend?

Roger Conrad

8:01

Hi Joe. The class I've been recommending are the B shares--which are the most liquid and trade NYSE under the symbol "CWEN."

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