JotCast | 5/14/20 Conrad's Utility Investor Live Chat

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5/14/20 Conrad's Utility Investor Live Chat

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Fred

4:41

What do you think of, at some point on the next significant decline in WTI, of buying ETF UCO to profit big time if/when oil stages a comeback, ie, when demand catches up with and exceeds supply.

Roger Conrad

4:41

That could eventually be a good trade. But our view is energy investors have a strong buying opportunity right now in selected energy stocks--waiting for oil prices to "bottom" is a good way to miss it.

Lawman

4:56

BEP trades above your highest recommended buy price. So why do you have this as a hold, rather than a sell?

Roger Conrad

4:56

Brookfield at this time is trading above my highest recommended entry point but under the lowest price at which I think it's worth taking a partial profit on.

I set the highest entry points at levels based on a combination of Quality Grades and prospective returns, which I define as sustainable dividend yield plus sustainable annual dividend growth. For A rated companies, I generally look for a return of 10%, and progressively higher returns for lower rated companies.

Recommended "taking profits" points are generally set by comparing the current price to the highest recommended entry point--and expressing the difference in terms of the number of quarterly dividends it would take to make up the drop back to the buy target. The more dividends it takes, the stronger the rationale for taking some money off the table.

Brookfield shares were in profit taking territory back in mid-February before stocks started coming down, and I did give the take profits advice then. Within a month, it had actually fallen

Roger Conrad

4:58

below the Dream Buy price--giving us another opportunity to load up. Now BEP is back at a point where it's just best held. As I pointed out earlier in the chat answering a question, Q1 was strong and the outlook for the rest of the year solid, with the company business model seeing little impact from COVID-19.

Arthur

5:03

Hi Roger,

I appreciate all your hard work and timely updates.

Please list those companies you feel are in the best position to do well (or at least survive without damage) the current Covid crisis.

If possible please provide links to all your publications' latest Dream Buy's lists. I find them rather helpful, but they are sometimes difficult to find when I try to go back and look for them.

As a subscriber to all of your publications, I sometimes have trouble remembering where to look and I am not always sure the search function is taking me to the latest update.

Thank you.

Roger Conrad

5:03

The Dream Buy tables are always going to be in the Portfolio section of the issue. We are looking into including the table in the menu on the website, along with the other regular table--which is the table of stocks trading at issue time above their highest recommended entry points.

As for a list of companies I think will weather the COVID-19 crisis/survive without damage, stock prices are going to continue to be affected. But as far as underlying companies and dividends are concerned, I'm very confident in all of the Conservative Holdings--especially after their solid Q1 results and guidance we've seen the past couple weeks.

As I've said before, there's no guarantee some won't stumble the next few months. But at this point, all are on track to come out of this dominant as ever with safe and growing dividends.

Lawman

5:06

Do you like BMY as a dividend play?

Roger Conrad

5:06

We are very likely going to add some more big pharmaceutical stocks to our CUI Plus managed portfolio--which as I mentioned earlier in the chat is widely diversified across income producing sectors in best in class stocks. Bristol-Myers is a little on the low side for what we look for as far as current yield goes (less than 3%). But this is one of the world's steadiest companies.

Rick

5:13

Owned UTX, now RTX for many years. Also kept OTIS, though undecided as to whether this will be long-term. Sold CARR.
Would appreciate your thoughts inasmuch as UTX (pre-merger/spinoffs) was relatively recently sold from the CUI PLUS portfolio.
Your measured and excellent commentary given amidst the pandemic has been an enormously helpful anchor in handling investing through this continuing and devastating black swan.
Thanks so much and stay well.

Roger Conrad

5:13

Thank you for that kind endorsement. My view when we did hold UTX was that the sum of the parts was worth more than the whole. I recommended selling it when that no longer appeared to me to be the case, which as you point out was before the split.

I do think all three of these companies are first rate in their respective sectors. And I can tell you that RTX is on our short list for addition to the CUI Portfolio the next time stocks come down--which despite the crazy action today may be in progress. OTIS' business is intriguing for its "smart buildings" operations to increase efficiency, though the yield is less so at this point.

My guess at this point is if we'd held through the breakup we probably would have sold CARR and OTIS by this time to hold RTX. That's for yield but also because we currently lack exposure to defense/aerospace. Hope this answers your question.

Bill F.

5:18

Hi,
For either the next issue of EIA or the EIA Live Chat, please update your views on the oil sands producers and the pipeline providers serving them in light of increasing number of institutional investors and ESG ETFs excluding them. See the following story from The Wall Street Journal.
Norwegian Fund Excludes Large Canadian Oil Producers

Roger Conrad

5:18

Will do Bill. In the meantime, my short opinion is the money that was going to exit these names on that basis has already done so. I had to laugh when I saw that Norwegian Fund news, since that country's wealth has been built on oil exports for some time.

Apparently the country's politicians were putting pressure on the fund managers to divest--a circumstance that I can't recall an example of ever working out well in any country. But in any case, considering how washed out the best in class of energy stocks is at this point, there's plenty of buying power to lift them higher regardless of how much ESG money is staying away.

Marc

5:19

Hi Roger. Would you consider MDU as a good investment and with a safe dividend? Thanks

Fred

5:19

Hi Roger,

Roger Conrad

5:19

If you're having trouble getting your question in, don't worry. I'm still here answering.

On a general note, if anyone else is having trouble, please write us at service@capitalisttimes.com and I'll be happy to get back to you after the chat.

Roger Conrad

5:24

Addressing Marc's question on MDU Resources--which I'm not sure how posted before I was able to attach my answer--I do consider MDU a solid company and Aggressive Holding now. The dividend is safety covered by the regulated electric and gas utility and regulated pipeline business. The much larger construction services and materials business is the primary engine for long-term earnings growth--and would be a real winner if we ever get an infrastructure bill out of Washington. Though EPS guidance was trimmed, I though Q1 results were very encouraging, mainly in that they showed the construction business is holding up well to COVID-19 fallout. Concern it would not was the primary reason the share price came down so hard in March.

Gerald D

5:29

How do we explain the large drop in AES price this year? Do downgrades seem warranted?

Roger Conrad

5:29

Gerald, I gave my opinion on I consider AES a cheap stock in detail answering a question earlier in the chat--as well as several catalysts I believe have contributed to the drop in the share price.

One factor that has not been a selling catalyst, however, is analyst opinion. Bloomberg Intelligence shows 9 companies offering advice and target prices for AES, 8 rate it buy with 1 hold. And even the lowest 12 month target price listed is about 25% over the current price. That's actually a sharp improvement since the end of March, when opinion was decidedly split. And there's also been a wave of insider buying this year.

None of this guarantees a price recovery for the stock anytime soon. But they are a good sign one is coming and that this stock is a bargain.

Lawman

5:34

Will EPD and MMP be able to sustain, or even increase their dividends, in the face of such a dramatic decline in the use of gas and oil? Are EPD and MMP buys at current levels?

Roger Conrad

5:34

They gave a pretty good rationale for why they would be able to when they announced Q1 results and updated 2020 guidance. That's no guarantee it will hold the rest of the year. But the assumptions both Enterprise Products Partners and Magellan Midstream are proceeding on appear to be conservative regarding energy prices, drilling activity and refined products demand.

The two things that set EPD and MMP apart from most other midstream companies are strong balance sheets and diversified portfolios of conservatively positioned assets with very creditworthy customers. So far their business models are holding up against this worst of all worlds for the energy sector. And priced to yield 10%, they look very cheap.

Lawman

5:39

What is your take on MLP's in general? Is this a good space to be in at this time, or should MLP's be sold, and bought back later?

Roger Conrad

5:39

I think that depends on which MLPs. My view is there are still far too many owners of midstream infrastructure in the US--and that means consolidation is going to happen, preferably with mergers but also with bankruptcies and asset fire sales.

I cover only a tiny handful of the largest and most "utility like" midstream companies in CUI. But if you've been looking at our coverage universe lists in Energy and Income Advisor the past few years, you'll basically see almost a solid list of sell recommendations. And it's no exaggeration that following our Endangered Dividends List the past two years has saved the bacon for many--there have been 58 dividend cuts in our coverage universe since early March.

Bottom line: We think this basically a once in a lifetime opportunity to buy the best in class midstream companies in North America. But it's also the last best chance to sell almost everything else, particularly now that prices have bounced from the late March lows.

Lawman

5:40

Do you have any take on gold?

Roger Conrad

5:40

We like it for the next several years, as well as selected gold stocks.

Garry

5:45

Been a long-time subscriber starting with UF and continuing with CUI. Just subscribed to CUI-Plus. Question: what is your recommendation for starting to incorporate the CUI-Plus companies into my current portfolio

Roger Conrad

5:45

First of all, thank you for giving CUI Plus a chance. Our next update will be coming out in the next few days.

Like I said, we treat CUI Plus as pretty much a unitary portfolio and we track as we would a fund. On a practical basis, though, I realize readers are going to integrate what's there with the rest of their stocks. So I would just say to follow the same general rule of diversification and balance--you don't want any one position to be large enough to disproportionately affect the whole portfolio. if you follow that approach, adding these stocks will boost both growth and safety.

I also invite you to write me at service@capitalisttimes.com if anything isn't clear in next CUI Plus Portfolio update.

Lawman

5:48

What is your take on tankers such as INSW that have increased dramatically with the decrease in the price of crude?

Roger Conrad

5:48

I think it's still a very tough business, and a lot of the dividend paying names are now coming up on contract expirations as well. That's why the dividend cuts this year have been so deep in this sector--and frankly without the payouts, it's hard to see a lot of appeal in most of the tanker stocks.

That said, there are a handful on my radar screen and we will be addressing them in an upcoming Energy and Income Advisor. Feel free to ask again on the EIA chat, which as I said earlier is on May 28 at 2 pm.

Fred

5:52

Would ETF UCO be useful and safe to hedge against downstream rising oil prices? Thanks Fred

Roger Conrad

5:52

That's an interesting question. The ProShares Ultra Bloomberg Crude OIl ETF (NYSE: UCO is set up to increase by 2 percentage points for every 1 point boost in a range of oil futures contract prices. And historically, rising oil prices have been bad news for downstream companies such as refiners like Valero.

What's been different about this downturn for energy is prices have been driven lower by both a supply glut and demand destruction--when in the past falling prices have lifted demand. That probably negates the utility of a hedge like this.

In any case, as I said and as EIA readers are likely aware, our view is this is the time to build positions in best in stocks of class energy companies across the board.

Lawman

5:55

How would you compare PBA to US pipeline companies. Do you like PBA at this level?

Roger Conrad

5:55

I put PBA on the same level for quality as EPD in the US. It's now the third largest midstream in Canada behind TC Energy and Enbridge, so it has scale to outlive this downturn. It has a great record for project execution, as does EPD. And it's very diversified by assets and high quality customers--with as I've said a high reliance on capacity based contracts that aren't affected by volumes or commodity price volatility. Finally, PBA is cheap as is EPD.

Lawman

5:56

Any thoughts on SWKS and NXPI as dividend plays?

Roger Conrad

5:56

I don't know much about either but the yields are quite low under 2%--so I'm not really interested in either on that basis.

Jim Lobue

6:03

Big oil has taken quite a hit and Royal Dutch Shell's dividend cut was a bit of a shock. You rated it a hold before and after. Do you have any idea what conditions will be necessary to start raising it again?

Roger Conrad

6:03

I frankly didn't expect Royal Dutch to cut quite that deeply. But now that they have, it looks to me like they're made a fundamental shift in how they want to allocate capital. That is raising the dividend again isn't going to be a priority--in fact they hadn't actually increased it since June 2014.

As for whether other super majors will follow its example, I think Royal Dutch's situation is different enough that maybe it will be the only cutter in that group this cycle. That stems from the $54 billion they paid for buy BG in 2016 and become the king of LNG. That business has obviously been hit by this crisis and even before that wasn't producing the cash flow RD anticipated. It also left a lot of debt to cut--and the price crash has made it problematic to sell assets to get that done.

As for the rest, BP and Eni SpA are kind of on the edge, while CVX, XOM and TOT seem better protected.

Lawman

6:06

Why to pour current performance of T? Is its dividend safe? Which do you prefer as between T an VZ, and why?

6:09

Some MLP's such as WES have incredibly high yields. Are these stocks values, or value traps?

Roger Conrad

6:09

We recommended selling Western Midstream from our High Yield Energy List earlier this year before it took an axe to the distribution. We still like potential for a comeback at Occidental (OXY), which contributes the vast majority of its business and WES has strong assets. But there are bigger and better names in midstream that have less risk and are just as cheap.

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