You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
Return toCapitalist Times
3/30/22 Capitalist Times Live Chat
powered byJotCast
Prev Page View Full Chat Next Page
Brian
4:32
Can you provide your opinion on buying stocks of the major North American gas producers as a long term buy and hold strategy. Any opinion on DBA or other commodities etfs?
AvatarElliott Gue
4:32
Our view is that, in the very short tertm, US natgas prices are too high relative to underlying fundamentals. However, we see the average price of natural gas as much higher going forward than it was in the 20010-2020 era. Natgas producers would be an ideal way to play that view since they make money based on the average price of gas over time -- there's limited upside from short term "spikes" in the commodity. Generally, I am bullish on agricultural commodities. DBA is a good trading vehicle though for longer-term price moves we've generally favored the companies that produce key inputs to the industry such as fertilizer stocks, ag machinery companies like DE and CNHI. Some of these names are a little extended right now, but it's a group I like on dips generally.
Pete H
4:36
I would like to understand how/when do you use the different buy prices you have in your Utility Investor letter "Chase a dream" and "Buy Target"
AvatarRoger Conrad
4:36
The Dream price is basically a level that is very unlikely to be reached unless there's a real market event, as was the case in March 2020. The idea is you buy there and, so long as the company's underlying business is still sound, you're pretty much guaranteed a windfall profit. Stocks sometimes get to those levels when the market is strong. But again, so long as our analysis of the business is solid, we expect a windfall from those levels.

The "Buy Target" is basically the highest recommended entry point for a stock. It's based on a combination of our quality criteria for the underlying business and prospective return, defined as a combination of yield and sustainable dividend growth. I use 10% yield + growth as a benchmark for the highest quality companies, progressively higher returns for lower quality fare. Hope that helps.
John A
4:37
Hi Elliot:  If a credible ceasefire occurs in the war, do you have an opinion on how much Brent crude might temporarily decline in the short term?
AvatarElliott Gue
4:37
Brent was trading around $90/bbl +/- in late January before the market started really focusing on the prospects for a Russian Invasion. So, that's a level I'd watch in the event of a credible cease-fire. This also corresponds to support at the 100-day and 200-day moving averages at $83 to $90 per barrel. Fundamentally, I think that even with a cease-fire Russian volumes might take some time to return to the global market and that the Russia-Ukraine war has exposed the myth that OPEC+ can dramatically increase output in the short term. So, I would say that that $85/bbl to $90/bbl would be the low end of a reasonable target for Brent in the event of a cease-fire.
Sohel
4:42
What is your take on TTE (Total French Oil Major)? Is it a good entry point at ~$52 price? What is the level of risk? also what would be good price target? Has a nice ~6% yield but has a 15% Foreign tax with held.
AvatarRoger Conrad
4:42
I think TotalEnergies is trading at a very good entry point currently--and you can reclaim the foreign withholding tax as a credit on your US taxes if you hold outside an IRA. The primary reason shares are discounted to other super majors like Chevron for example is Russia exposure--about 14% of expected LNG production by the end of the decade is supposed to come from a project in Russia that's currently running and another in development. Management has said it will not exit its ownership of these assets, which are actually held through a 19% stake in a non-government producer Novatek. The company is ending purchases of oil from Russia this year and is suspending other investment. I think it's fair to say TTE will likely trade at a discount to other super oils so long as Russia is an issue--which I see no sign it won't be anytime soon. On the other hand, it can cover all CAPEX, dividends and debt service with cash flow at sub-$40 Brent oil and it's investing heavily in renewable energy and new reserves
James
4:42
What are your current thoughts on the Russel 2000 small caps index (IWM)?  We were long this index when it broke out   above a 9 month base, which turned out to be a wicked bull trap that crushed all the longs.
AvatarElliott Gue
4:42
Generally small caps tend to outperform in inflationary environments, but the Russell 2000 isn't acting well right now. I think some of that has to do with the large number of expensive growth stocks in the Russell 2000 -- the Russell 2000 Value Index looks much healthier than the Russell 2000 Growth Index. The Russell 2000 is down 6.6% year-to-date compared to about -3.4% for the S&P 500. However, the Russell 2000 growth index is off 11.6% while the RTY Value is off just 1.4%. In fact, in one of the long-term products I manage we recommend IWN, which is an ETF that tracks the Russell 2000 Value Index.
AvatarRoger Conrad
4:43
Continuing with Sohel on Total Energies, I think you have an opportunity to lock down a very cheap stock with a huge yield here that
's likely to go quite a bit higher. And risks are well reflected in the share price.
Pete H
4:46
Sorry Roger, I sent the previous message too early by mistake without the following exemple. In the case of SRE the Chase a dream is $120 and the Buy target is $140. The Consider Take Profit is $160. (respectively +14% vs Buy target and +33% vs Chase a dream). If we are a long term investor, how should we apply those different price recommendations? Thanks in advance
AvatarRoger Conrad
4:46
Thanks for the clarification. I think as a long-term investor, you can take a little off the table here and sit with the rest. If the stock revisits $140, you can re-up your position. If we do see a break in this market, then $120 is a possibility and would be a great place to buy shares. But at this price, it's harvesting time for some--not all--certainly for anyone who's been with us from the beginning to ride Sempra up. Great company, just looks overextended here.
Dave
4:53
Hi Roger, is Four Corners Property Trust (FCPT) a Reit that you follow or are familiar with?  Yielding just a bit under 5.00%, I was hoping you may be able to speak to any favorable/unfavorable views on this one?  Thanks very much.
AvatarRoger Conrad
4:53
It's not one we currently follow in The REIT Sheet but I will likely add it. Thank you for the suggestion and as a general shout out to members, please feel free to make suggestions. From a cursory look, this REIT actually has a very steady dividend history including consistent increases, particularly for a REIT with restaurant property tenants and considering what that sector went through with Covid. They've also been a steady acquirer and have still managed the trick of maintaining strong credit ratings, with Fitch raising them earlier this month to BBB. No recommendation for you today but this looks like one you'll see shortly in The REIT Sheet. Thanks again.
Neil
4:59
Elliot, with the U.S. and European governments now both withdrawing at a certain pace from the business of effectively pumping up stock markets; do you have a rule of thumb for how this should be processed by ordinary investors. Thanks.
AvatarElliott Gue
4:59
That's a question I've pondered a lot recently, and a tough one to answer. Historically, fundamentals were the key driver of the stock market; for example, in years where S&P 500 earnings were up a lot, the market was usually up a lot and vice-versa. I actually wrote an article recently looking at S&P 500 returns vs. Earnings estimates and found a strong correlation pre financial crisis. Since the financial crisis of 2007-09, however, the correlation has plummeted -- you now need to take liquidity from the Fed into consideration in a big way as it can overwhelm fundamentals. All that excess liquidity also goes a long way toward explaining some of the silly valuations out there these days -- just look at stocks like GameStop or any of the ARKK holdings as examples. As the Fed (finally) withdraws excess liquidity, I think you're likely to see some of these post-financial crisis liquidity phenomena reverse course. And, if these stocks really break down, the momentum will act as an accelerant.
AvatarElliott Gue
4:59
I have a list of market, fundamental and economic indicators I follow closely. I use this list to help provide a framework or prism through which I can try to assess the health of the market and economy. I have definitely been forced to add more weight to a few different liquidity measures on the list in recent years. The shift has been extraordinary. Longer term, I still feel like the 70's is a good blueprint for what we're seeing right now. The Fed was too easy in the late 60's and early 70s and that resulted in high inflation, poor equity market returns and, eventually, the need to tighten very aggressively in the late 70's/early 80's to break inflation.
Max
4:59
I believe Dominion Energy has the only LNG export facility on the East coast.  Will D benefit from LNG exports to Europe ?
AvatarRoger Conrad
4:59
Hi Max. Kinder Morgan has one at Elba Island on the Georgia coast. Aside from that, almost all the US capacity is in the Gulf of Mexico. Dominion has actually sold down its interest in Cove Point to about 25% currently--part of its general exit from natural gas midstream assets. The facility does generate good income but capacity is pretty much spoken for at this point, so I'm not sure the owners have a lot more upside. Also, the Atlantic Coast Pipeline that would have fed an enlarged Cove Point was cancelled by Dominion in 2020, due to relentless opposition in the courts. It's possible Mountain Valley will get built and provide a potential feeder from Appalachia to justify an expansion. I like Dominion for a lot of reasons. But at this point, there are more direct LNG expansion plays. I also note the stock closed over my highest recommended entry point of $85 today. So anyone without a position now should wait on a dip.
Jim T
5:03
Your view on LNG outlook for next few years and, if positive, what are the companies best positioned to benefit.
AvatarRoger Conrad
5:03
Hi Jim. This is definitely a topic many of you have asked about. And I think it will make a pretty decent feature for EIA in April. As we've said, LNG exports/imports are an established technology. But even so, it takes several years to permit, cite and build on a greenfield site. And even adding capacity at operating facilities--that typically have permits to expand--can take years to go from drawing board to operations. That means the earnings impact even in a best case is several years off--though signed contracts and construction projects themselves can lift share prices well before. And once these facilities start earning, they continue to do so for decades.
James
5:07
Lot of LNG discussion, but has anyone asked about Cheniere Energy (ticker: LNG)?  Any consideration for entering this stock as a play on increased LNG export to Europe?
AvatarRoger Conrad
5:07
Hi James. Again, everything I said in Jim T's question applies to Cheniere as it does to every other current and prospective developer of LNG export capacity. I did mention the MLP affiliate of LNG answering a question earlier in the chat--which is essentially the same play. We cover it (CQP) in our MLPs/Midstream coverage universe and rate it a buy on dips to 50 or lower. It's a player and it has a lot of growth ahead--and the Biden Administration's apparent about face on natural gas infrastructure is a huge plus. But it's going to take time before new capacity is built and starts generating earnings.
Dan
5:12
Hi Roger, thanks so much for your past insight on the Utility stocks.  I'm wondering if the increase in PPL stock over the past two weeks is just a reflection in the strength of the utility index or is the Rhode Island acquisition nearing completion?    Thanks for your thoughts.
AvatarRoger Conrad
5:12
Hi Dan. I think probably a little of both. The latest company news is that the Massachusetts Supreme Court has lifted its stay of the state regulatory commission's approval of the sale of Narragansett. That utility operates entirely in Rhode Island, but seller National Grid had to get approval in Massachusetts because it operates there. The Rhode Island AG has filed an appeal of commission approval in that state with the RI Superior Court--which is now the only remaining hurdle to the deal. My view is the court will eventually uphold regulators' approval, which will allow PPL to adjust its dividend up to reflect the new earnings. If they sink it, PPL's takeover appeal will rise substantially. Either way, I'm keeping the recommendation.
Tom
5:17
Hi Roger.  I know you have been negative on bonds for some time now, and reduced (or eliminated?) your position in VWITX late last year.  Do you see significant additional downside in this municipal bond fund if we are actually headed for Carter-era interest rates?
AvatarRoger Conrad
5:17
Hi Tom. That's a really good question. I think the Fed is really between a rock and a hard place now--and it's going to be very hard not to err either on the side of letting inflation get even more out of control or really sinking the economy. My view is still that if any bond fund is going to weather this it will be Vanguard Tax-Free Intermediate-Term, which has no meaningful credit risk and low duration. But I have cut it back to pretty much minimal weight while this sorts out. I don't see a whole lot more downside this year, even with inflation at a 40-year high. But I feel better with the money market companion fund at the moment.
Alex M.
5:21
With the recent political initiatives to raise tax revenues (billionaire tax, terminating 1031 exchanges, etc.), do you think there's a chance of an attack against the MLP structure?  We've seen events like that in the past with Canadian Trusts, so I'm wondering if you think MLPs could again be in the crosshairs?  Thanks.
AvatarRoger Conrad
5:21
Hi Alex. Anything is possible of course. But at this point, there's not much left of this money tree to shake. The time to have done that would have been early 2014 following all of those junk IPOs. But at this point, there's just not much to go after. The lesson from the Canadian trust massacre is that companies that are strong as businesses will be profitable as investments, no matter what structure they have. And I will point out that since the end of 2010--when trusts effectively ended--Pembina Pipeline has returned 11% a year to investors. In any case, I don't see this as a significant risk to energy investors at this time.
James
5:25
Do you think Platinum (ticker: PPLT) is a good investment for inflation protection and potentially an alternative to the more expensive palladium for industrial use?
AvatarRoger Conrad
5:25
Generally speaking, we prefer to buy individual mining companies, which are leveraged to the price of the commodity. I will agree with you that there's an uptrend for commodities--and it could really turbocharge depending on how Russian sanctions and the world's push for cleaner energy collides. We will have a feature piece in our Capitalist Times advisory on metals in April.
Alex M.
5:30
Thoughts on TDS preferred stock?  The series V and series U issuances have been hit hard lately due to rising rates and their perpetual timelines.  Do you view them as good income investments at this time?  Thanks.
AvatarRoger Conrad
5:30
It's entirely possible that the Federal Reserve gets inflation under control without a bear market/recession. And in my view, TDS preferreds do not carry a lot of credit risk, despite sub-investment grade ratings. But there's also no possibility of dividend increases. And that means their prices are highly sensitive to interest rate volatility. Bottom line--I think we're much better off with the common shares, which yield almost 4% now and are in line for regular dividend increases going forward--including the 3.2% increase in the payment that will be made tomorrow. I will focus on yields including fixed income in an upcoming issue of Conrad's Utility Investor, as that seems to be a popular topic in this chat. Thanks for your question.
John C
5:36
I am concerned with Europe placing windfall profits tax on TTE & BP. Less likely for U.S. based companies. Thoughts?
AvatarRoger Conrad
5:36
I think a tax of some level to offset so-called "windfall" profits is always a possibility when you see price spikes. On the other hand, I think you have to understand it terms of the broader relationship between the energy sector and the government. And while there are always going to be loud voices advocating this kind of action, the Russian situation is providing a great deal of cover for all concerned. It's definitely something to watch. But even if there is a tax, it would have to be pretty massive to have a real impact on these companies' profitability. And keep in mind TTE is already heavily discounted for its Russian exposure as I noted earlier in the chat.
Andrew
5:41
Hi Roger and Elliott, Thanks as always for these chats.  I have a few questions, but I'll ask them separately if that's okay.  First is MPLX.  This seems to be one of the best run MLPs, with very good dividend coverage, good to above average leverage, a very supportive parent, and decent, if not great growth prospects, yet they trade a yield that is among the highest in the MLP universe and certainly the highest of among the biggest MLPs. What gives? What will it take for them to move up to something closer to EPD?
AvatarRoger Conrad
5:41
Hi Andrew. You're certainly welcome. MPLX is up about 14% this year after a 52% in 2021, and it's now back roughly to where it was in early 2019--so we have seen some pretty positive share price momentum to match the business momentum. I do think there are more gains ahead, but the galvanizing factor for midstream companies is ultimately going to be a volumes recovery, when North American producers start to use windfall gains from high commodity prices to boost output rather than paying down debt, dividends etc. So far, the financial turnaround at companies like MPLX has been due to management streamlining, cutting costs and making good investments. Big gains will come only with volumes. BTW, the difference between EPD and MPLX yields now is basically a percentage point, so it is closing the gap.
Jeff
5:45
You advised trimming PXD.  I have not because of the variable dividend.  I think I got the last one based on $70 or $80 oil.  I think the next one should be higher and they will continue for some time.  I thought I read that the CEO said they thought they would return $22.00 in dividends this year.  I own EOG and DVN too for that reason.  What's your opinion?
Connecting…