JotCast | 5/12/21 Conrad's Utility Investor Live Chat

Return to

5/12/21 Conrad's Utility Investor Live Chat

powered by

Prev Page View Full Chat Next Page

Roger Conrad

4:10

counterparties and the model proved itself during the pandemic year. The main question about all three is if their sponsors would support their growth with asset sales on reasonable terms, and if they could raise sufficient low cost capital. I think all three have answered both questions in the affirmative the past couple years. And with investors abandoning renewable energy stocks temporarily, they're trading at good entry points.

4:12

This is not to say there aren't renewable energy/green stocks investors shouldn't still avoid. In fact, as I've said before, most of what passes for green these days is pretty much junk--for example FuelCell Energy, which went from $1.58 in October 2020 to $29.44 per share on Feb 10 and is now back to $7.60 and falling fast. The difference is these renewable stocks have real earnings and pay real dividends. Don't bank on them staying cheap for long.

HANS

4:21

Roger, What is your overall outlook for this market in 6 to 12 months and what categories are in your opinion the best ones to invest in. Should profit be taken on stocks higher in comparison to your ratings or just sit tight and enjoy the dividends

Roger Conrad

4:21

Overall, my partners and I believe what's broadly described as "value" in the stock market will continue to close the gap with "growth" this year. We also expect to see the economy pick up steam as the pandemic's depressing impact wears off, while fiscal and monetary policy remain historically accommodative. The Fed may shift to a somewhat tighter stance by 2022 if inflation does become a problem. But at least for the next 6 to 9 months or so, the macro picture should be at least cautiously optimistic for the kind of stocks we focus on--certainly the essential services companies tracked in the Utility Report Card coverage universe.

That said, I continue to advise following a three part strategy, which I highlight in the Portfolio section of every issue. That's to sell companies where the underlying business is weakening, take at least partial profits on companies that rise above certain price points to build a cash position and build a list of high quality stocks to own when they sell off--as high quality,

Roger Conrad

4:22

dividend paying renewable energy stocks have this spring.

4:26

As far as taking profits goes, I would advise following the advice in my table "Portfolio Holdings Trading Above Target," which I publish in every issue of CUI in the Portfolio discussion section. This is a list of every portfolio company that at press time is trading above my highest recommended entry point. Most aren't much above that price and the advice is just to sit tight and enjoy the dividends. But those that reach the price in far right hand column "Consider Taking Profits" are stocks where I do recommend taking some money off the table.

4:30

This is a simple strategy that's worked progressively well as this now 12 year plus old bull market has continued, particularly if used in conjunction with the prices in the "Dream Buys" table. Mainly, as the bull market has aged, momentum has become more important and prices have gone from profit taking to dream buys and back again--giving us an opportunity to juice profits by taking money out at very high prices and putting it back at much lower ones. I know not every investor follows this advice--and there's nothing wrong with buying and holding, so long as you're OK with the ups and downs. But from your question, it sounds like you're interested in a more active strategy. And this is one that's worked very well the past few years, without requiring a lot of trading and sacrificing of dividends.

Paul

4:39

Could you comment a little on what you would recommend differently for taxable, IRAs and Roths. I had a bit of AGLXY in an IRA and when it dropped I converted it to a Roth holding since you said you expected it to do well sometime in the future. Any other great values (looking back from a few years in the future that your crystal ball shows)? One more thing you have made a lot of great recommendations and of course no one perfect a few not so great. Somehow I tend to pick the not so great ones disproportionately. I guess I should stay out of the aggressive and stick with conservative pick huh? and Also sell anytime a conservative stock gets move to aggressive to limit my faulty choosing?

Roger Conrad

4:39

Good question Paul. My expectation when I make any recommendation of course is always that it will work out. I protect myself from over exuberance with two rules. One is I never want to overload on any one position, no matter how attractive it looks on a quality or price basis. That means I don't recommend strategies that average your cost down, and it's also the reason I frequently advise taking money off the table in the highest flying stocks that exceed my highest recommended entry points by the greatest amounts. The other thing is I recommend a large number of stocks. And when someone asks me "which one" I'd buy, I'll usually advise spreading bets over 2 or 3--as I in fact did earlier this chat regarding a question about three yieldcos.

I can say that I've had big winners among both Aggressive and Conservative stocks, as well as stocks that haven't done as well. Generally, risk averse investors are going to be better off with Conservative picks. But I think the best way to even things up is just to

Roger Conrad

4:40

diversify more. I think our portfolio renewable energy stocks are a great place to do it now, since they've pulled back so much despite strong Q1 results and 2021 guidance.

4:45

As for what's better for taxable versus tax deferred accounts (IRAs etc) in the portfolio, I think the portfolio stocks are basically suitable for a strategy using either. Where you put them should really be a function of your overall financial goals--in general tax exempt accounts are still the best bet for saving but at some point you'll be making withdrawals that are taxed and you'll want to compare your tax rate with the still advantaged rate for qualified dividends. Hope this helps.

Alex M.

4:55

Hey Roger, What's your confidence level that PPL can maintain it's current dividend ($1.66) after it completes the upcoming transactions? If you think a payout cut may occur, do you have a new dividend level in mind that may be declared? For example, $1.25? Thank you.

Roger Conrad

4:55

Another great question. Based on the selling price for the UK electric utility (including likely GBP exchange rate), PPL's simultaneous purchase of National Grid's Rhode Island utility and the impact of planned debt reduction, the company will have plenty of cash left over to make another acquisition or buy back enough stock to replace the earnings power from the UK sale. Also in the announcement of the UK sale and Rhode Island purchase, the CEO affirmed the company would continue paying the current level of dividend at least the rest of 2021 and strongly inferred that it would beyond that.

That was enough for me to take PPL off the Endangered Dividends List. There are still things that have to happen--like the successful close of the transactions. And as indicated in Utility Report Card, PPL's Quality Grade is C, indicating a higher level of risk than say there is for CMS Energy, for example. But I do think the dividend risk has dropped. And in any case, the stock would still yield a percentage point more

Roger Conrad

4:56

than the Dow Jones Utility Average even on a cut to $1.25 per share. Even in that case, which I think is increasingly unlikely, the stock would still be a value.

P Mat

5:06

Great work and commentary! Any comments on PG&E (PCG) and/or PG&E Equity Units (PCGU)?

Roger Conrad

5:06

Thank you!. I think PG&E is looking very cheap right now. The reason can basically be summed up as investor concerns about wildfire risk, as its California service territory enters another wildfire season. Last year's has been pretty widely acknowledged as the worst in the state's history. And the expectation given low precipitation is this year's is likely to be even worse. And PG&E is obviously the most exposed, due to a weakened financial position post-bankruptcy, the criminal charges it now faces from 2019 wildfire damages, the scrutiny of a judge overseeing its wildfire remediation efforts and most of all its location in a region most prone to wildfires.

My view is all of those risks and then some are reflected in PG&E's price, as well as the equity units that are mandatorily convertible into common units on August 16, 2023. The equity units pay a dividend of around 5% at their current price but ultimately will track the price of PG&E common units they'll convert into--a range of 8.5929 to 10.5263 sh.

Roger Conrad

5:09

The number of shares in the conversion will be set to reach a target value of $100 per equity unit. If PCG sells for $9.50 or less, you get the max. If it sells for $11.64 or more, you get the minimum shares. The current price appears to reflect some expectation of a higher PG&E common stock price as well as the remaining dividends for holding through conversion.

5:11

Thank you for bringing these securities to my attention. I think both the equity units and common shares for PG&E are attractive at this time, but only for risk takers. This stock is cheap and the track record of utility companies coming back from bankruptcy to full financial recovery is to date unblemished. But wildfire risks are real. And despite having Patricia Poppe as CEO--formerly of success at CMS Energy--there's no guarantee of success.

Al C

5:22

AGLXY , 30% withholding tax and 6% fee. Will the tax be refunded eventually or will this just be lost income?

Roger Conrad

5:22

First off, the withholding tax rate for US investors in Australian stocks is 15%, just as it's 15% for Australian investors who hold US stocks. Moreover, when a company pays a "fully franked" dividend, there is no withholding. I'm not sure why you're being withheld 30% but that sounds like it's worth a call to the broker. Also, a 6% fee on owning a foreign stock sounds like a good reason to take your business elsewhere, at least for anything listed overseas. This kind of nickel and diming investors is unfortunately all too common. But you don't have to take it. I would recommend checking out a company like Interactive Brokers but at least make that call.

Fortunately, you can get claim what withholding tax you've paid to date on your US taxes, if you hold the AGL in a taxable account. Otherwise, there is no mechanism for recovery. Wish I had a happier answer.

Al C

5:25

AGLXY Is it now in a buy range?

Roger Conrad

5:25

I'm rating it a hold until we see some turn in the business numbers. It's certainly cheap. And as I've indicated in my answers to questions earlier in the chat--as well as in the May issue of CUI--there is some reason for hope that AGL has indeed hit bottom. But again, until there is some sign of a turnaround, that's a reason to hold on, not for me to recommend investors put in fresh money.

GrayhawkAZ

5:28

What is your favorite value across the utility universe?

Roger Conrad

5:28

The two best buys in every issue of Conrad's Utility Investor are always going to be the Conservative Focus stock and the Aggressive Focus stock I highlight in every issue. The two for may are both high yielding, financially strong contract renewable energy generation companies--Brookfield Renewable (either the MLP units traded as BEP on the NYSE, or the C-Corp traded as BEPC on the NYSE) is the Conservative Focus and Atlantica Sustainable (NSDQ: AY) is the Aggressive Focus stock. Both had very strong Q1 results and guidance for 2021 and now trade at their lowest prices in several months. Thanks for that question.

Alex M.

5:34

Hey Roger. Would you ever consider adding data center plays to your coverage universe? While they are not utilities per se, they have certainly become "essential services" in our tech-dependent society, much like Crown Castle (CCI) and American Tower (AMT) are now being covered by your advisory. Names like DLR and CONE come to mind. Thoughts?

Roger Conrad

5:34

Thanks Alex. I still consider those a little far afield from the essential services companies I track in CUI. As you point out, this is a fast growing business with a lot of room for more growth. And in fact, areas with the most development of data centers tend to be very bullish for the electric utilities serving them, for example Dominion Energy (NYSE: D) in Virginia and Pinnacle West (NYSE: PNM) in Arizona. But they are in a very competitive business also and returns historically as well as dividends have not been exactly utility-like.

That said, these are very much a part of REIT Sheet coverage and I think now is a decent time to pick some of them up. My favorite now is CyrusOne Inc (CONE) as a buy. I thought it had a very strong Q1 and guidance for the rest of the year was as well--and I expect them to close their current valuation gap with other data center REITs like industry leader Equinix.

Howard F

5:35

It was nice when a new question came up it made a knocking sound

Roger Conrad

5:35

I had not noticed that, though as you can see there is a lag between my answers and when questions are asked--mainly because it's just me here. But as I said, I will stay on until everything in the queue is addressed--and thanks for participating today.

Alex M.

5:41

In your opinion, would AY or CWEN be a more attractive play on renewables right now? I am looking to add more exposure to the space and already have BEP. Do you have a preference between AY and CWEN since they have both recently pulled back to attractive entry points? Thank you.

Roger Conrad

5:41

A bit earlier in the chat, I said that when people ask me to choose between a pair of stocks I almost always say both. And that's basically my answer here. Both had strong Q1 results. Both are still on track to meet 2021 cash flow and dividend growth targets. Both have been successful raising capital to grow. And both have supportive sponsors that are likely to deliver attractive asset drop downs the next few years--Algonquin Power & Utilities in the case of Atlantica and Global Infrastructure Partners for Clearway.

As far as the primary differences between the companies, Atlantica has about half of its assets outside the US, while Clearway has none. That has pros and cons--mainly being able to invest abroad adds potential opportunities but also risk if not managed properly. Atlantica does generally rely on contracts that pay in US dollars, which controls currency risk. And management has experience in the countries where it operates. But again, operating abroad means more complexity. As for Clearway, it has

Roger Conrad

5:43

extensive operations in California and Texas. In CA, its primary customer is PG&E, which as I described above is in recovery from bankruptcy. Even when it was in Chapter 11, the utility still paid its bills. But Clearway did have to hold cash at the project level as surety for lenders, which forced a temporary dividend cut. That's a pretty good example of the risk of geographic concentration, as is the loss the company took in Texas for the inoperability of a wind turbine during the February freeze.

5:44

In any case, both companies appear to be gaining scale and financial strength this year. And as you point out, both are cheap and solid buys.

Ron

5:49

I appreciate your chat sessions for subscribers. Do you feel ETRN and RDS/B have long term upside?

Roger Conrad

5:49

I definitely believe the super majors like Royal Dutch have fully adapted to the current low point in the energy price cycle and have a great deal of upside as it turns higher. These companies are also making themselves less cyclical by investing in contracted renewable energy and other businesses where they have expertise but are not tied to either oil and gas prices or demand for refined products. I currently rate it a buy up to 40 in the Utility Report Card.

As for Equitrans Midstream, my major concern remains potential financial fallout from continued delays in construction of the Mountain Valley Pipeline and the related Southgate project. Earlier this month, management pushed back the target in-service date from later this year to "summer 2022," due to inability to win approval from regulators or to uphold federal permits in the courts. It also increased the projected cost of the pipeline to $6.2 bil from the previous range of $5.8 to $6 bil and inferred it will absorb the additional $200 to $400 mil.

Roger Conrad

5:52

The biggest risk is of course that this pipeline is ultimately cancelled and Equitrans is forced to write off its entire expense on its 48% ownership interest--as other owners like NextEra Energy have already done. Equitrans' share of that could easily exceed its current market capitalization. That's why the company is on our Energy and Income Advisor Endangered Dividends List. If you're interested in learning more about EIA. please call Sherry at 1-877-302-0749 anytime, Monday through Friday, 9-5 ET.

Dave P

5:57

Hello Roger, thank you for all of your good advice over the years. I like safe investing and you deliver. Anyway, I’ve been watching Spire as well as Algonquin for quite some time now. You don’t talk about Spire much but IMO it’s metrics from your report card are extremely attractive. I want to pull the trigger and buy SR. Your thoughts on any potential issues would be appreciated. Thank You!

Roger Conrad

5:57

I like Spire as a company with its strong Missouri and Alabama regulated utilities, low risk pipeline and storage operations and conservative but opportunistic energy marketing operations. I thought FYQ2 results were strong, as indicated in the Utility Report Card. And I don't see many risks to mid-single digit earnings and dividend growth going forward, based largely on utility rate base investment. I did have the stock a buy earlier this year at a lower price and have rated its hold since its latest surge. But I think it would be a solid addition to conservative portfolios on a dip into the 60s.

Mary

6:03

Which is best greenest stock out there with the highest paying dividend? Are there any good pure solar plays that you like?

Roger Conrad

6:03

I do track several solar-focused companies in the Utility Report Card. FirstSolar (NSDQ: FSLR) and Jinko Solar (NYSE: JKS) are manufactures of solar panels. SunPower (NSDQ: SPWR) is majority owned by super oil major Total SA (Paris: FP, NYSE: TOT) and makes and sells solar systems, with a focus on commercial markets. And SunRun (NSDQ: RUN) is a distributed solar company.

All of these companies have rated buy at one time or another--in fact, I rate Jinko a buy up to 40 currently for its broad international exposure and strong presence in the US where it has a facility in Florida. But in general, I prefer the actual generation companies for several reasons.

First, they operate by contract, which makes cash flow a lot more reliable and balance sheets stronger. Second, the more manufacturers compete to sell the most effective and cheapest products, the more profitably they can deploy solar generation. And third, my favorites all pay dividends, while these companies can't afford to.

Roger Conrad

6:05

Of the generation companies, I would say NextEra Energy (NYSE: NEE) and Enel SpA (Italy: ENEL, OTC: ENLAY) are the two with the most leverage to solar growth. AES Corp (NYSE: AES) combines solar with its globally leading Fluence energy storage venture with Siemens AG. All three stocks are strong buys at current prices.

Connecting…

Your current subscriptions

None

Register now to continue managing your subscriptions

E-mail Address	Chat Owner	Status	Remove

Enter your email address to be notified when Sherry Roberts hosts a chat