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4/30/24 Capitalist Times Live Chat
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Al C
5:35
Sometimes you mention something called a "Substack". I do not know what it is or where it is, please enlighten. Thanks
AvatarRoger Conrad
5:35
Hi Al. It's a forum established the past few years to promote independent thought. The web address is simply "substack.com" and you can search different authors from there. My publication is "Dividends with Roger Conrad." It's 100% free and you can have issues sent to you every week just by typing in your email.
Victor
5:38
Elliott, COP had a nice run in March. What's is your opinion on this one?
AvatarElliott Gue
5:38
I think all of the big oils will be Ok longer term. And COP has decent natgas and Permian exposure. I still prefer XOM and some of the smaller producers. One thing that catches my eye is that despite all the talk of weak natgas prices, those producers have been performing very well -- CHK, EQT are good examples.
Victor
5:42
Elliott, SLB is testing the lows of June of 2023. Do you see this downtrend to continue? Thanks.
AvatarRoger Conrad
5:42
Hi Victor, SLB is trading around where it did in mid-February of this year after selling in a relatively narrow band since November. That basically tracks the performance of the Philadelphia Stock Exchange Oil Service Sector Index and it reflects producers generally keeping their CAPEX plans conservative this year--as we point out in our analysis in the EIA issue released this week and now on the website.

As noted in the issue, SLB nonetheless reported solid Q1 results and stuck to 2024 guidance--including for expected accretion from the ChampionX acquisition. And that's why we view this as a buying opportunity rather than a cause for alarm. But it is likely investors are going to trade services stocks in line with expectations for energy prices, so volatility is to be expected.
Randy D
5:42
Hello and good afternoon.  What are your thoughts on Capital Product Partners (CPLP) ?
AvatarRoger Conrad
5:42
Hi Randy. We still track it in our MLPs and Midstream coverage universe and currently rate it hold, The shipping world has been turned a bit on its head by conflict in the Middle East, and specifically the difficulty of moving through the Red Sea. And that's given the sector a much needed lift. On the other hand, the tanker sector is still plagued by over supply. And rising interest rates have elevated the cost of debt finance, further pressuring profitability. We saw the impact of both in CPLP's Q1 results released today. And adjusted net income per common unit dropped by -35%, with a 43% increase in interest expense and finance cost a major factor. We still believe the best carriers have a strong long-term market to look forward to. But at this point, there may be more shaking out to go. And CPLP's yield is just 3.6%--so there are a lot more attractive income plays in energy.
Guest
5:51
Yes Roger - the UBTI tax kicks in with higher gains & it depends on the 'debt ratio percentage' of the MLP.  For 2022 that was 29% for EPD, 41% for ET, and 44% for MPLX .  So... if you had $10,000 in capital gain in EPD and sold it - then $2900 would be taxable.  However in filing 990-T, the first $3800 roughly is tax free.  After that the rate is 15% or 20%.
AvatarRoger Conrad
5:51
Thanks again for sharing. Leave it to the US tax code to come up with something like that! But at least the IRA softened the blow a bit I guess.
Guest
5:57
Yes.  Bottom line - if you expect more than $10k in capital gain in an MLP - be prepared to pay some tax, or don't put it in your IRA!
AvatarRoger Conrad
5:57
There's still the cost basis step up for estates if you hold MLPs until you pass, which would not apply to an inherited IRA. A lot of confusion on this issue for sure.
AvatarElliott Gue
6:02
Had a handful of questions re: shorter term moves in oil, natgas and uranium stocks today. If you are interested in swing trading commodity ETFs and related stocks -- holding periods of a few weeks to a few months -- we are offering 60-day free trials to our CT Trader Commodities service this week. You can call Sherry on 1-877-302-0749 if you're interested or want to know more, just tell her you were on the chat today to make sure you get that free trial.
AvatarRoger Conrad
6:28
Q. Hi Roger - thanks for another appreciated live chat party.
 
1. I saw in last month's report card that you had changed your opinion on Crown Castle from being quite undervalued to HOLD (which I think most of us interpret as a tacit or soft sell). I'm glad I paid attention and sold my stake before the price dropped another 10-15 points amidst the management power struggle and uncertainty about strategic direction. What's your take on the actual value? is there a level where CCI would look like a strong buy to you? 
2. Sticking with telecom for a moment, BCE has really cratered and is now yielding 9%, looking like it's in an out-of-favor pit like VZ was in a year ago. I've started accumulating shares in the low 30s. Given a long-term investment horizon, is there any business concern for BCE? Is this a market-is-crazy telecom bargain, or is there a true shift in competitive landscape and dependable cashflows? 
6:31
 
 
3. I'm seeing more headlines today that Berkshire's Pacificorp unit is facing far more wildfire liability exposure than they had expected... and BRK's core expertise is risk evaluation. Today's headline is that lawsuits in Oregon are ballooning to more than $30B, which I think is about 5X what BRK paid for the business. At what point could we expect BRK to exit Pacificorp? Insurance cos have been brutal in their readiness to eliminate policies and services in geographies they view as liabilities (I know, presently living in CA), so I'm watching this and waiting for Buffett to team to make the cold decision. What do you think of the Pacificorp developments? And is this just reinforcing the wildfire discount?
 
4. Sticking with themes of asset liability in the American West, I've been watching for further news on PCG's plans to sell significant stakes in their hydroelectric dams. Originally, I saw those headlines and thought it would be a big deal, since hydro is a prized long-lived asset, and there's
Wildfires are obviously bad, but flooding is just as catastrophic, if not worse, and the new normal of intense atmospheric rivers is now an added risk to the always present earthquake factor. Is there any update on the hydro asset sales? Serious interest in bidding? Or is there caution to take these assets on due to liabilities?
 
5. Reading through Atlantica's annual report, I found buried in there that their photovoltaic assets in Chile are behind on debt payments. Minor issue, temporary? How common is it for renewables managers like AY, BEP, Northland Power, AES (etc) to have a contracted project behind on debt payment? Could this result from insufficient currency/inflation hedges?
 
6. Just read this morning that AES is looking to sell its Brazilian unit and that Total has joined the bidders for the assets. Thoughts? I know AES has been trying to increase focus on its US business, but I had pictured that process as emphasizing US growth more than ex-US exits. Would successful Brazil exit improve AES
market perception and credit ratings?
 
7. A general question about valuing renewable asset companies, since most that I hold are valued as though they won't grow... which is nuts and false given the record investments being made under long-term contracts. So am I missing something? Am I missing a longer-term business concern? Even for Atlantica, a renewable company that's growing slowly in the sense of new projects, I look at the rate of project debt repayment and I see the company as 'growing' in the sense that its ownership stake principal in each project rises as the project debts approach full repayment. Is that a misguided view of the business value? 
 
Best regards.—Dan N.
 
 
A.Hi Dan. I discussed Crown Castle a couple times in the chat. Bottom line is I think it’s a decent hold at this price on the basis of its dividend, a possible takeover offer and a recovery that’s highly likely but even in a best case will probably take 2-3 years—including for a return to dividend growth. I think there are better
6:32
REITs to invest in—as noted in my REIT Sheet. And once again, I recommend anyone really interested in REITs to give Sherry a call this week from 9-5 ET at 877-302-0749 and ask about our offers, which I think are quite generous. I really put what we do there up against anything available to individual investors.
 
Regards BCE, I will have a much more informed opinion on that one after May 2, when they announce Q1 results. And I will have a full analysis in the May issue of Conrad’s Utility Investor a week or so later. The long and short of it is I think they can and will continue to cover the recently raised dividend and the stock will recover as the company proves its stability.
 
I don’t think Berkshire Hathaway will exit PacifiCorp. And in fact, I think his angry shareholder letter is already having a major impact—the company’s most important state Utah has now passed legislation both establishing a ratepayer financed wildfire fund to pay claims and capping damages in court cases. I think we’ll see similar
legislation throughout the West, mainly because states can’t afford to have utilities bankrupted by trial lawyers. And today’s headlines aside, the case in Oregon will likely be resolved with legislation as well—the alternative for the state is zero investment or else these cases being drawn out potentially decades.
 
I would like to invite you to check out my Substack.com column “Dividends with Roger Conrad”—as I have written about these issues there. And of course, they’ve been a subject of Conrad’s Utility Investor this year as well. I consider the “wildfire discount” an opportunity overall.
 
We’ll hear from Atlantica Sustainable next month on Q1 earnings and issues like these are generally discussed in the subsequent earnings call. At this point, it looks like they’ll report before the May issue of Conrad’s Utility Investor goes to post—and I’ll have full analysis there in the Utility Report Card company comments. At this point, I don’t see this as a major issue. Company debt is almost all at the project
level, which means it’s non-recourse to the parent. Debt holders do have priority over equity holders—which in this case is Atlantica. So payments can be interrupted when there’s not sufficient revenue. But the important thing is the sum of all the projects. And as of early April analyst meetings, Atlantica was still on track to meet guidance. Again, more on Atlantica in the upcoming May issue of CUI.
 
AES Corp is a pretty consistent buyer, developer and seller of assets. And at this point, management is still focused on reducing debt—which is why all three major credit raters now have it investment grade with a stable outlook. The Brazilian assets have been put up for sale and the fact TotalEnergies is joining the bidders is bullish the company will get a good price for what it’s selling. I expect to hear more when Q1 results are announced May 2.
 
Finally, regarding business value of renewable energy companies, investors aren’t valuing them nearly as highly as they were in early 2021—when sector prices
6:33
reached truly bubble levels. But it is also quantifiably true that AES, Brookfield Renewable, Hannon Armstrong et al are worth a lot more than they were then as businesses as they’ve continued to grow. They also pay a lot more in dividends: AES up 20%, Brookfield up 23%, Hannon up 22% etc.
 
It’s also not uncommon for entire sectors to lag for years after a bubble bursts. And as the aftermath of the 2000-2002 Tech Wreck proved, some companies never make it all the way back to their old heights. What is true, though, is high quality companies that keep growing and raising dividends eventually get their due as stocks, regardless of sector. And while a great number of renewable energy companies have been consigned to the dustbin of industrial history the past several years, these survivors have continued to grow and become more valuable as businesses. We’re going to have to continue to be patient for a recovery. But so long as they stay solid on the inside, all of these stocks are going to generate solid returns
from this point.
Ron
6:39
I would appreciate your opinion on MRO.I have a small holding and wonder if this would be a good time to add.
AvatarRoger Conrad
6:39
It's not one we currently track in EIA, though we have in the past. Earnings are tomorrow and we would expect earnings to reflect some negative impact of lower realized selling prices for oil and gas--as is the case with most producers. This company has a lot of operations in many different countries. But we would expect it to be able to keep growing as the energy cycle moves higher--either independently or with a takeover. Earnings and the share price are going to follow oil prices on a near term basis. And we think the stocks in our Model Portfolio are better places to invest in energy. But we do believe a rising tide is going to raise all boats. And with assets in the Permian, Eagle Ford and Bakken, Marathon is very likely on someone's takeover target list at this time.
AvatarRoger Conrad
6:42
Well that's all we have in the queue, as well as from the pre-chat emails. Thank you once again to everyone who participated today, We truly appreciate your business and your insights and questions. We will be sending a link to a transcript of the complete Q&A tomorrow morning. And of course as always it will be posted to the CUI and EIA websites.
6:45
Once again, we invite anyone who asked questions about REITs today to give Sherry a call about our REIT Sheet service. And for those interested in taking advantage of what we believe is a building bull market in commodities, we strongly urge finding out more about our CT Commodities service. Sherry has the answers about our offers at 877-302-0749, Monday through Friday, 9-5 ET. And don't forget to sign up the services Elliott and I provide at substack.com.
6:46
Have a great evening everyone!
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