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5/25/22 Capitalist Times Live Chat

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James

3:30

ET preferred (ET-C and ET-D) have taken a dive of late. I purchased these in 2018 between $24-25 as an alternative to high yield bonds. But now with loses of 10-15%, I wonder if something fundamental has changed and these investments should be sold to preserve the capital that is left?

Roger Conrad

3:30

Hi James. What's happened to the prices of these preferred stocks is simply higher interest rates and inflation--they've dropped along with the rest of the bond market, even as Energy Transfer's fortunes as a business continue to improve. And the company restores its dividend toward the pre-pandemic rate of 30.5 cents per quarter. These preferreds do have the benefit of floating rates, which should adjust higher eventually and protect them on the downside. But on the other hand, they don't anything close to the upside of Energy Transfer common shares in terms of potential dividend growth--and yields are really that much higher either.

Lawman

3:34

Are you still bullish on gold and, if so, what do you see as the upside catalysts for gold, and over what period of time?

Roger Conrad

3:34

Hi Lawman. As I noted earlier in the chat, most of the near-term catalysts for gold have been headwinds for a while. But what's more remarkable is gold really hasn't given up that much ground compared to previous periods when the Federal Reserve was tightening up the money supply. The current price of an ounce (around $1,860) is well below the $2,085 high reached in early March. But it's basically where gold has been the past couple years. That's pretty good relative strength. And we think it signals another big move up at some point in the next year.

Lawman

3:38

MLP's have been tending up even in this terrible market. What are your projections for MLP's over the short, medium, and long term, and which are your favorite MLP's?

Roger Conrad

3:38

Midstream companies' gains over the past couple years since oil and gas prices bottomed have been primarily the result of management successfully adjusting to a low volumes environment--as producers continue to use cash to pay down debt, buy back stock, make acquisitions and raise dividends rather than increase production. Now best in class midstreams have streamlined and cut debt enough to raise dividends and buy back stock again, with some acquisitions, and investors are giving them some credit, as well as for their high and safe dividends. We think there will be a round of even bigger gains as producers start to increase output and midstream volumes recover. Our top recommendations to take advantage are still the best of the biggest--a good example being a stock I've answered several questions on today MPLX yielding a safe and growing 9%.

Lawman

3:40

TTE seems to have fared far worse than the other oil majors. Do you favor TTE over majors such as XOM and CVX, and is TTE a strong buy notwithstanding the war in Ukraine?

Roger Conrad

3:40

We hold TotalEnergies in our CUI Plus model income portfolio. My view is it took a hit earlier this year mainly because of concerns about the French election result and the company's exposure to Russia--which it answered successfully in Q1 results and guidance as well as a sizable dividend increase. I rate it a buy up to 60.

Lawman

3:44

PBA, AETUF, and VET all seem to be doing well. How do you rate these Canadian companies vs. their US counterparts?

Roger Conrad

3:44

All were the subject of the feature article last month in Energy and Income Advisor and I don't have a lot to add to what I said there. They're also tracked regularly in our Canada/Australia coverage universe. Pembina's Q1 results and guidance are highlighted in the current EIA issue. ARC would be a buy at 12 or less, Vermilion at 25 or less and Pembina at 38 or less.

Victor

3:47

Elliott, your buy price on VLO is under $105. However, it's now trading over $127. Are you planning on adjusting the buy under price? Thanks.

Elliott Gue

3:47

Valero is one name where we're still considering a boost to the buy price (which I think would be the second or third time we've increased our buy< recommendation). Fundamentals are solid there -- the only thing is that it has moved up so far so fast this year, we're inclined to still wait for something of a pullback to recommend buying more.

Don R

3:51

Hi Roger- thoughts on PPL after the dividend cut. do you still like it as a possible takeover candidate

Roger Conrad

3:51

The big issue for PPL recently has been completing the acquisition of Narrangansett Electric from National Grid. That deal has now cleared a last minute challenge in Rhode Island state courts, following a settlement between the company and the state Attorney General that involves $50 mil in bill credits, $43.5 mil in forgiveness of unpaid bills and up to $103 mil in costs related to transitioning operations. PPL has also agreed not to seek base rate increases for three years following the close.

The question now is how much the company will raise its dividend, now that the Rhode Island utility earnings have been added. The consensus is we'll see a payout of 26 cents a quarter with 5-7% growth thereafter. The close may reduce the urgency for a takeover of PPL. But it's still attractive as a target and I rate the stock a buy up to 32.

Victor

3:52

Hi Elliott, I had PDCE shares for a long time and the stock like the rest of this sector is doing well now. Is it worth holding on this one? What is your opinion?

Elliott Gue

3:52

PDCE has good acreage and a relatively low cost of production. There are other producers where we see more upside and upside catalysts, so it's not our favorite right now. However, it should do well in the higher for longer commodity price environment we see over the next few years.

James

3:55

Hi Elliott, do you still expect to see UNG pull back and to what price level? or has the fundamentals change to justify natural gas at these levels? I'm still short UNG via KOLD but with such heavy loses, I may soon capitulate no mater what the fundamentals say. Thanks.

Elliott Gue

3:55

We still see gas prices coming down this summer as production is rising and storage levels are normalizing. We still believe a pullback to the $4 to $5 range is likely from just under $9 currently. While we did recommend taking a significant profit on part of this position in December when gas was sub $4, I have been surprised at how far gas has risen since then and how long prices have remained elevated.

Don R

3:56

How about SOHO as a return to travel play

Roger Conrad

3:56

That's been my thought for Sotherly Hotels for a while. And Q1 results were considerably better than last year, with FFO turning positive again and hotel EBITDA more than doubling. On the other hand, results are still well off Q1 2019 and the company is expecting revenue per available room to be -1% lower in Q2 than in the comparable 2019 quarter. There is a risk that a recession could cause results to worsen further, which is why I rate SOHO a hold even at this low price. My feeling is this could be a good buy again. But there are number of headwinds.

Hans

3:58

Elliott, What is the outlook for "KOLD", since some profit taking some time ago the stock is at a low 5.

Elliott Gue

3:58

We have been surprised at how far gas has run this year. In my view the fundamentals still support a move back to $4 to $5/MMBtu this summer and the volatile swings we've seen in gas since late April are the sort of volatility I typically expect to see at a top. This time of year we typically see large weekly builds in gas storage, which we're starting to see. That remains the most likely near-term catalyst for this rally in gas to break.

Victor

3:59

Hi Guys. I still have some shares of WES. Nice yield but it has been moving sideways. What is your opinion on this one?

Roger Conrad

3:59

We're more positive on Western Midstream than we've been in a while. They adjusted to a low volumes environment, with Occidental keeping things conservative. And the increase in the quarterly dividend to 50 cents along with the boost in EBITDA guidance for 2022 following Q1 results is a clear sign of business momentum. We've generally preferred the midstream companies in our Model Portfolio for fresh money. But WES is a buy at 25 or less. We track it in our MLPs and Midstream coverage universe in Energy and Income Advisor.

Hans

4:00

Elliott, As an addition to my previous question to KOLD, should this be time to buy again or will the price of Natl Gas continue to increase Thanks

Elliott Gue

4:00

I don't see much upside for gas this summer and I continue to look for a downside break. However, given how gas has rallied way more than I expected this spring, I'm just not comfortable yet recommending more than a small short position in gas in the trading service. I'd rather wait to see some sort of downside break -- confirmation in the price -- before we recommend adding to this short.

Don R

4:06

In the Reit sheet, thoughts on DOC and MPW- any thoughts on dividend safety and dividend growth. Thank you

Roger Conrad

4:06

The model for both Physicians Realty Trust and Medical Properties is owning and leasing medical facilities to operators--dividend growth is generally pegged to asset growth and dividend safety depends on the health of the tenants, mostly large providers who rely at least to some extent on government funding. I thought Q1 results and guidance were solid at both of these REITs. I prefer MPW because it pays a higher yield and is growing the payout--DOC has not increased since July 2017. MPW also should get a lift later this year from closing a Utah hospital swap with HCA, which will further diversity its tenant base. My buy target is still 23. DOC is a buy up to 20.

Hans

4:09

WBD from 26 to now 17 is this still a hold and what is the outlook. Thanks

Roger Conrad

4:09

Hi Hans. I really don't have any change in advice for AT&T shareholders who've received shares of Warner Brothers Discovery (NYSE: WBD). I think the shares are still undergoing a transition where income oriented investors sell, which has generally pushed the price lower. But there's every sign that management is executing on pre-merger guidance--with $3 billion in synergies still on target. And the BT sports joint venture is the latest favorable business development. I think at the least we'll get an opportunity to sell at a higher price if we're patient.

James

4:09

Hi Elliott, for safe money typically allocated for bonds, do you still like SRLN even after it's recent fall? I'm surprised that this bond can fall so much. Does you Bloomberg show that SRLN is selling at a discount to NAV?

Elliott Gue

4:09

SRLN is trading pretty much in-line with its NAV (a 0.14% discount). There just hasn't been anywhere to "hide" in fixed income so far this year. SRLN is down about 5% though, which is better than Treasuries (7 to 10-year T-bond ETF down 8.9% YTD) and better than corporates, even better than TIPs (inflation -protected). In fact, the first 4 months of this year marked the worst return for bonds in more than 40 years. I would say that I believe we're getting to the stage of the cycle where the market's main concern shifts from higher rates to slowing growth. If that's the case, then I do think fixed income will start acting like a "hedge" for equity market volatility again. That's one reason I added some allocation to IEF -- 7 to 10 year Treasuries -- to the model portfolio. So I still think SRLN and IEF are decent hedges for equity exposure going forward. That said, I do think that longer-term bonds won't be the "no-brainer" low-volatility and income hedge for the stock market that they've been over the past 3

Elliott Gue

4:09

30 years because of a persistent inflation problem. I'd also say that if we get a bear-market rally in stocks this summer as I expect SRLN should outperform because the ETF holds bank loans.

Bill W

4:11

Roger I have been following your work for nearly 30 years and Elliot for about 10. I have loaded up on Enel. Forecast PE of under 10 and divy of almost 7 seems to good to be true. Any second thoughts since your February spotlight in CUI?

Roger Conrad

4:11

Bill, Enel SpA had a great Q1 and its guidance for earnings and dividends appears to be on track. I had some analysis of results in the Utility Report Card of the May issue of CUI and will have more in June. But the message is that this company is still successfully investing in both its regulated utilities and renewable energy projects on a global basis. And that's powering the dividend--a cheap stock at 11 times expected next 12 months earnings.

Nolan

4:12

you mention ung often (the short side) but are we still holding on to KOLD?

Elliott Gue

4:12

In the trading service we recommended shorting UNG (or buying a smaller long position in KOLD as an alternative). WE then recommended taking a profit in the 50% to 60% region on half that position in early December. So, we are still recommending you hold on to that half-sized position for now as we still think gas has downside into summer. We may also recommend adding to that position if gas shows some signs of breaking down.

Hans

4:14

VET , is this a stock to hold on to, div. yield is very low, Thanks

Roger Conrad

4:14

It wasn't always so--in fact prior to the pandemic Vermillion paid 23 cents a month Canadian. I don't know if the dividend will get that high again. But I can say this company is generating a lot of free cash flow at these oil and gas prices--with those European wells really paying off. And I think that will eventually mean a much higher yield. I rate VET a buy up to 25.

Alex M.

4:16

Hi Roger. What would be your "consider taking profits" price for Consolidated Edison (ED)? The yield just hit a multi-year low of around 3.1% due the recent rise in the stock price. Wondering if this is a good point to take some gains off the table. Your thoughts? Thanks.

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