JotCast | 5/26/21 Energy & Income Advisor Live Chat

Return to

5/26/21 Energy & Income Advisor Live Chat

powered by

Prev Page View Full Chat

Elliott Gue

2:51

July gas is around $3/MMBTU right now...I think you could see $4+ if we get a heat wave in July-August.

Bups

2:55

Barrons is hot on TOT as an oil major moving big time into green energy. Is it a buy at 47?

Roger Conrad

2:55

Total SA's NYSE-listed ADRs have been a buy in our Deep Dive Investing and CUI Plus Income Portfolio up to 50 for some time and remain so for those who don't already own them. The dividend even if you make no attempt to recover French withholding tax on your US taxes is still well over 6%, which is competitive and is covered by free cash flow after all CAPEX so long as Brent crude oil is at $40 or higher. At almost $70/bbl oil, this company is able to accelerate its investment in contracted renewable energy and utilities, which as we saw during the pandemic last year produces cash flow that's not affected by either lower oil and gas prices or reduced demand. It's also able to cut debt ahead of schedule, buy back stock and ultimately raise its dividend. Earnings are still going to be primarily driven by oil and gas--which we think will be a very good thing for the duration of this energy cycle.

Bups

2:59

Please give your latest opinion on Baker Hughes. Thanks.

Elliott Gue

2:59

BKR is cheap in my view and they have some best-in-class exports to end markets like LNG. One thing that's been a headwind is that GE still has a sizable stake and they've been a seller. I do think that's less of a risk than it was some months ago given the improvement in the energy services business this year and the consequent lower impact of GE sales. Right now, our only services long is SLB due to its hefty international exposure but BKR is one we've been watching

RBB

3:06

Sorry, my bad. It's GMGMF (Graphene Manufacturing Group) out of Australia.

Roger Conrad

3:06

No worries. This is another interesting one to put on my radar screen. The stakes in the race for a cheaper, long lasting and more efficient battery are very likely in the trillions of dollars--since it's absolutely essential to any kind of serious electrification effort in transportation, as well as to reduce the intermittency of wind and solar to an acceptable level. This company says it has research agreement with the University of Queensland to develop a patent-pending process into a commercial scale prototype battery with greatly increased power density capability using graphene. That raw material would come from cracking methane to produce graphene and hydrogen, rather than mining graphite. That's exciting. The "but" is there's a very long way to go between research and commercial scale. And in the meantime there are no earnings to value a stock that's been all over the map.

Bups

3:10

Do you prefer BKR to HAL and NOV? Thanks.

Roger Conrad

3:10

At this point, Schlumberger is still trading well below our highest recommended entry point of 42, so that's still where we'd focus in the energy services sector. With producers focused on free cash flow generation rather than output, this is a very hard business outside of the best of the biggest, which SLB is. The only exceptions would possibly be small tech names like Solaris (NYSE: SOI), which we do rate a buy in our coverage universe.

Hans

3:18

Will you give advice in due time when we see a possible big downturn in the market to invest in safe fixed income to hold us over for the next cycle. Thanks

Elliott Gue

3:18

We definitely watch the stock market and the macro outlook for oil on an ongoing basis. Much like in 2014, when we see signs of trouble ahead we'd likely recommend actions to hedge/protect downside risk. In the past that's included using inverse ETFs and we did actually recommend a list of energy-related bonds at one point during the last downturn. Of course, in the last cycle, that also included recommending the sale of some energy stocks we though were vulnerable to the decline (names like Seadrill, Linn and the frac sand companies were among those we recommended selling between early 2014 and early 2015.

Bill F.

3:31

Thanks for your continuing great work.

Any recommendations on the consent solicitation for CEQP preferred?

Roger Conrad

3:31

Thanks Bill. I saw there was a Seeking Alpha piece on this topic. The Consent Solicitation concerns the change in control of Crestwood Equity Partners, which was made necessary by the exit of former sponsor First Reserve and the intended transition to a governance structure that includes a publicly elected board of directors. Preferred shareholders will now be allowed to vote for board members, as well common unitholders. Also, according to SEC filed documents, preferred holders who file a valid consent to the change of ownership will receive 1.25 cents per share as a "consent fee." The record date for voting was May 14.

My view for some time has been that Crestwood would eventually call the preferreds given the 9% plus coupon is well above market rates. The Board did not retain a separate representative for the preferreds--which are convertible to common units at the holder's option. And management alluded to some potential conflicts of interest between common and preferred shareholders in the documents.

Bups

3:34

Do you have an opinion on FLR as a long term turnaround spec? Thanks.

Elliott Gue

3:34

They're shifting their business from traditional energy-related construction projects more in favor of green energy. I think they're making some interesting moves. The one thing that gives me pause is how much of the recent rally is predicated to a new infrastructure bill...while I do think we'll see some sort of infrastructure package, my concern is that the stocks have already run up in anticipation of that and will see some selling on the news itself.

Roger Conrad

3:36

Continuing on the CEQP preferred: But I think it still makes sense to follow the Board's recommendation and vote for the consent solicitation.

3:38

I should point out though that our recommended way to hold Crestwood has been through the common units, not the preferred.

Jim T

3:40

What is your current recommendation on MPC given their latest corporate strategy moves? What impact may it have on MPLX?

Elliott Gue

3:40

MPC sold off after they completed the sale of their speedway unit only to have the acting FTC chair state come out and call the merger illegal. Since then, the stock has rallied based on a few points including that the Republicans at FTC have stated that the company met all its obligations on the deal. Also, I'm not a legal expert, but the growing view in markets is that if the deal is illegal the antitrust issues are now the buyer's problem. So bottom line is there's no change in our outlook for MPC, which is generally bullish.

Michael L

3:44

I have read several comments on PAA/PAGP that suggest several contract expirations between now and 2025 will be rerated down, acting as a headwind to earnings growth. In turn, this could stall stock price increases for some years. Do you agree and what are your thoughts on potential price appreciation in the medium term? As always, thanks!

Roger Conrad

3:44

Hi Michael, There are two major takeaways from Plains' Q1 results and guidance in my view. First is this company's cash flows are extremely volume dependent--and right now producers' decision to pursue free cash flow over output is driving down volumes systemwide for Plains, including in the Permian Basin that now accounts for about 70% of total system throughput. Second, their very conservative financial policies now reflect that lower throughput, including deleveraging strategy and the level of dividend distributions, which means greatly limited downside at this point.

Like other midstream companies, they do have expiring contracts between now and 2025. And if shale production is still as constrained as it is now, it's possible even likely that Plains will have to renegotiate them at lower rates. On the other hand, we're already at a much different place in the energy cycle than we were a year ago. So it's more likely those contracts will be renewed at even better rates, as demand recovers.

Roger Conrad

3:46

Continuing on Plains, I wouldn't argue the volume sensitivity doesn't make PAA and PAGP a bit riskier to own than say Enterprise, Kinder or other more contracted and diversified midstream companies. But we own the shares in the portfolio precisely because of that sensitivity--and the upside it conveys as the cycle continues.

Jim T

3:46

Appreciate your diligence, it's reassuring to have your competent assessments. JT

Roger Conrad

3:46

Thanks Jim. We appreciate you joining us today.

Michael L

4:08

Roger, I forgot to ask this during the Utility chat, but do you still see meaningful upside for AES at this level? I got in when you first saw it as a turn around play moving towards being credit rated, so I'm way up. Just wondering if you still see additional upside? Thanks

Roger Conrad

4:08

Hi Michael. Thanks for joining us. AES has certainly come a long way in a hurry--still up 100% over the last 12 months despite some selling pressure from investors exiting stocks perceived as renewable energy, very likely from ETFs as this stock is currently in 161 separate stock indexes!

But I see three significant catalysts for more upside. First is gaining an investment grade credit rating at Moody's, which would mean all three major raters have it investment grade for the first time. That will bring a new group of investors to its bonds and should benefit the stock as well and it should happen later this year. Second, the stock still trades at a valuation discount at 15.5 times expected next 12 months earnings (DJUA is 17.6x). And third, I think there will be a return to at least renewable energy stocks with real earnings--and AES is still growing rapidly.Still a buy.

Michael L

5:17

Elliott, This is a DDI question. I have a position in all the stocks in your portfolio. I have more funds to invest and would appreciate your thoughts on which stocks I should add shares to at this point. BTW, are you planning new recommendations? If so, I will hold out for those. Thanks!

Elliott Gue

5:17

Hi Michael, thanks. I am actually looking at about 3 or 4 potential additions to the portfolio as part of an article that'll probably be out over the holiday weekend. There are some financials, a couple of industrials on the list. I am also considering adding to a few existing positions such as recently added ASO, which got a boost from Dick's Sporting Goods report and subsequent surge.

Michael L

5:18

TRP, WMB and ENB are all fairly conservative stocks with similar dividend rates. I'm interested in all 3, so which do you think has the most potential for price appreciation over the next 12 months? Thanks to the both of you for all the investing success I've had!

Roger Conrad

5:18

Thanks Michael. We appreciate those comments.

Of the three, Enbridge probably has the clearest upside catalyst over the next 12 months. That's because it faces the most uncertainty as it attempts to complete its Line 3 expansion in Minnesota for an in service date of Q4 and looks to beat back Michigan Governor Whitmer's attempt to shut down the Line 5 pipeline this year. So far, Line 3 is proceeding on schedule despite some still fierce opposition and the company is defending Line 5 in court as it attempts to reach a deal on an upgrade project. If the company can win on both counts, it should be a strong upside catalyst for the stock. TC Energy and Williams Companies in contrast don't face similar regulatory challenges, which means they don't share the risk.

Michael L

5:37

Thanks Gentlemen. Really appreciate these chats!

Roger Conrad

5:37

Our pleasure. Thanks again for joining us.

Roger Conrad

7:40

Ok well that looks like all we have for this chat. We'd like to thank everyone who joined us today and wish you the happiest of Memorial Days, however you spend it. If for some reason we didn't answer your question fully, please drop us a line at service@capitalisttimes.com. And we will be sending you a link to the complete Q&A in the near future, which will be posted on the Energy and Income Advisor website as well under the "Events" tab.

Thanks again everyone!

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