JotCast | 5/30/23 Capitalist Times Live Chat

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5/30/23 Capitalist Times Live Chat

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Roger Conrad

6:21

Hi Arnold. It certainly doesn't hurt when insiders buy their own company--though the lion's share of the action at Energy Transfer LP (NYSE: ET) is buying by its founder and main cheerleader Kelcy Warren. ET was my top midstream energy pick at the start of 2023, as I believed management would follow through on restoring the pre-pandemic level of dividend--and it has and then some, in addition to posting strong Q1 results and increasing guidance following the successful acquisition of Lotus Midstream. I think ET is a strong buy up to 15--happy Mr Warren agrees as he's in a better position than me to know how things are going.

Guest

6:27

Dear Roger and Elliott: I loved your recommendation in your last EIA issue to buy ET and "lock away a yield of nearly 10% while it still trades below our highest recommended entry point of 15." Perhaps a dumb question - but why does ET continue to trade at such a high yield? Why does it not receive the respect given (if any) to EPD, MMP and MPLX? Or does it get the same respect? I just see its yield as so much higher than the others. What am I missing? Is there greater perceived risk owning ET vs. MPLX? Thanks to you both. I subscribe to all of your newsletters! Love them. Best, Barry

Roger Conrad

6:27

There's the fact that high yielding stocks are under pressure now, which has hurt MPLX (yield 9.3%) and would have Magellan Midstream were it not for the takeover offer and its cash component. I think the fact its an MLP also still spooks some investors while some institutions can't own it. I think the fact it cut its dividend during the down cycle keeps it at a discount to MLPs that did not like Enterprise Products Partners (NYSE: EPD). And I think here's very likely a "Kelcy Warren" discount, since he's blamed for the dividend cut as well as roll-up mergers that subsumed the former Energy Transfer Partners and others. I think these are all ephemeral factors and that eventually ET will go to higher highs than even during the previous cycle. But they are having an influence now and require us to be patient to get there.

Guest

6:30

It seems like the nature of AES earnings is a black box. Does that concern you even though the company seems to be a great green energy play?

Roger Conrad

6:30

Thanks for writing. I actually think they provide a great deal of detail on their operations and balance sheet. And the vast majority of their cash flow is either from regulated utilities or contracted energy generation--including renewable energy but also natural gas. There are a lot of moving parts for sure--currency exposure being one. But I would not describe them as a "black box" meaning no visibility or transparency--in fact quite the opposite. It's not the AES of 20 years ago. And it's pretty well picked over by analysts as well, both equity and credit side.

Roger Conrad

6:34

Also to answer a piece of Arthur's question that didn't yet make it into the chat, I don't really have a preference for AES or AES C--one provides a higher yield and the other possibly a bigger boost for a smaller investment. As I noted in the previous question, AES is a solid company and the recent selloff appears more related to misconception as well as general sector selling. I do think the AES C has potential to be as rewarding as the Centerpoint convertible preferred was for us--though a lot will depend on what happens in the overall stock market between now and the conversion date.

Jimmy

6:36

Hi Elliott, What are your thoughts on Mosaic (MOS) the business and the stock?

Elliott Gue

6:36

Generally I think all 3 fertilizer companies -- CF, MOS and NTR -- will be good over the intermediate to long-term. I like CF the most because of its nitrogen exposure. Generally nitrogen demand is more stable and less discretionary than for phosphate and potassium. Also I think CF's US natgas advantage is underappreciated and a sustainable competitive advantage over most foreign producers. The catalyst I see here is that I suspect EU natgas prices could surge again into next winter, which could also serve to highlight the value in CF. I would say it's not a strong preference -- I like MOS at well it's the defensiveness of CF's business that gives it a slight edge.

Roger Conrad

6:38

Also for Arthur--regarding Hannon Armstrong Sustainable (NYSE: HASI), I think the reaction to the stock offering was overblown but entirely understandable given where the stock market is now. They obviously felt they'd be better off issuing shares to fund new investment, which as Q1 results and guidance indicated is quite robust. And the same day, Fitch revised the outlook on their credit rating to positive, indicating the likelihood of a boost in investment grade in the next 12 months. Financial REITs are notoriously opaque and I never recommend really loading up on a single stock. But with those caveats, this looks like a cheap renewable energy play to me with a unique niche and a safe, growing dividend.

salvatore

6:41

Always look forward to these chats Guys , Elliot in creating wealth you have a recommendation for CF . Ive owned mosaic for quite a long time, your thoughts on tax harvesting MO (loss) and purchasing CF in its place .

Elliott Gue

6:41

Thanks for the question. I actually like all 3 fertilizer producers over the intermediate to long-term. As I said in response to a prior question, I would give a slight edge to CF due to 1. Nitrogen demand tends to be more stable than Phosphate demand and potassium and 2. I do think the EU/US gas situation could be an upside catalyst into the second half of this year. They are also both plays on the same basic trend so I think doing a MOS for CF swap if its advantageous tax-wise could make sense.

salvatore

6:41

sorry about that the symbol on mosaic was mos not mo

Elliott Gue

6:41

Yes, no worries. I answered your question just above.

Guest

6:43

Roger and Elliott: What makes a company "potentially a high premium takeover target" per your last EIA issue when talking about PAGP? Is PAGP a "best in class" like EPD and MMP? I think it cut dividends during the last crash UNLIKE midstream companies like EPD, MPLX and MMP, right? Thanks. Barry

Roger Conrad

6:43

That's correct. As I pointed out in the EIA issue, Plains GP Holdings' (NYSE: PAGP) sole asset is shares of Plains All-America Pipeline (NYSE: PAA). And Plains cut its dividend in half in early 2020, as well as two other times earlier in the past decade's energy downcycle. The nature of its business and contracts means it's far more volume sensitive than Enterprise, Magellan and MPLX--so it was far more affected by the downturn and forced to cut dividends to avoid a major deterioration of the balance sheet. That said, we believe we are now in an upcycle. That means the trend for volumes is up, which will increase the value of Plains' pipelines particularly in the Permian Basin and means the trend for dividends is up as well. And it makes the stock a prime takeover target in our view, despite the dividend cuts of the previous downcycle.

6:47

Is FLNC Fluence a good investment? Is FLNC Fluence getting toppy and should be sold?

Roger Conrad

6:47

Fluence is one of the few pure plays for battery storage. And it's backed by 50% ownership from co-founder Siemens AG combined with its pension plan. I have intended to pick it up in CUI coverage, particularly now that it's gaining some business momentum. As a cautionary note, the company has never turned a profit, though it now expects to in fiscal 2024 (end Sept 30). So while the recent insider purchases are positive--and I don't see the stock as particularly toppy--it would probably take a hit in an overall market correction.

DAS

6:49

I am still hoping for another MLP (EPD,PAA) to make a competing bid for MMP but it seems less likely the longer we go after the OKE-MMP announcement. Do you still feel that a competing bid may materialize?

Roger Conrad

6:49

Well I'm still hoping for that outcome as well, though the longer there's no counterbid, the less likely we'll see one. Still possible, though. And given there would be no tax consequences for a deal with Plains or Enterprise, many would favor it over ONEOK's.

Bill S.

6:53

Hi Roger, Can you name some better alternatives for high yield currently? VZ approaching October '22 lows again, not seen previously since 2017, a good place for high yield dividend reinvestment?

Roger Conrad

6:53

Hi Bill. I do still recommend Verizon for high income and eventually a big recovery, though I want to say I never recommend anyone really load up on a single stock. The company is viewed as a plodder in the communications space at a time when the only stock many institutions will own in the sector is T-Mobile US. But so long as it continues to meet guidance--which it certainly seems to be doing now--the payout is safe and eventually it should return to favor.

As I said answering an earlier question, given what I'm hearing in this chat from readers, it is time for me to do a communications piece. Look for one next month.

JerJos

6:55

Your take on who will be the major beneficiary of the MVP completion.

Roger Conrad

6:55

I think natural gas producers in the Marcellus will be beneficiaries of a tightened market. As for as owners of the pipeline go, I don't think lead developer Equitrans Midstream (NYSE: ETRN) is out of the woods on the dividend, as costs continue to grow. But NextEra Energy owns 30% and would be in great position to monetize that interest if MVP makes it. it's pretty much written down now.

Guest

6:58

Elliott and Roger: I read other "experts" and pseudo-experts in chat boxes who claim that "rising interest rates are historically a time that utilities underperform." I know you have commented on the relationship among inflation, interest rates and utilities in the past. Can you do so again please? Thanks. Barry

Roger Conrad

6:58

Hi Barry. Well all I can do is quote numbers--and utilities have performed as well in years of rising interest rates as falling rates, in fact far better in some cases. The key as with all stocks is the economy--if it's weakening, utilities and other stocks slump (as we're seeing now). If it's strengthening, the direction of prices is generally up.

Look for updated versions of returns compared with interest rates and Fed policy in an upcoming Income Insights.

Guest

7:00

Roger: Long ago I believed you advised us to sell any interest we had in SLG. Thank you. It continues to hemorrhage. Can you comment on your portfolio listings ARE, BXP and CCI and their similarities/differences compared to SLG? I continue to tread very slowly per your recommendation with conservative staggered 3 part buy-ins of these companies. Appreciate your advice over the years. Best, Barry

Roger Conrad

7:00

I'm still sticking with all three and will have an update on them post-Q1 earnings and guidance updates in the May REIT Sheet issue--which as I said earlier in the chat I was putting the finishing touches on just prior to the chat. All three are lower obviously. But the short answer is earnings were solid in Q1 as was guidance. And so long as that's the case, we can look forward to recovery.

Michael L

7:00

Elliott, How do we access the free market Speculator, and subscribe to the service when it launches? Also, what is subtrack?

Elliott Gue

7:00

Substack is a platform for writing newsletters and "blogs". I first found out about them in 2020 when Twitter and some of the other social media sites started banning users for writing "misinformation" about COVID, etc. Substack really held the line and said they wouldn't censor people on their site (within reason) -- to be honest, I have a lot of respect for that stance and when they stuck with it under a lot of pressure to do otherwise. Now, there are a lot of writers there -- some right-leaning, some left-leaning and some that really aren't political at all like my Substack and Roger's. You can just choose what you want to read and what you don't like. The platform allows me to post long and short-form content, free posts, paid sub-only posts, host chats, post videos, allows readers to comment on specific posts; it's all accessible via a password protected website. The system all send out e-mails to all subs when new content goes live on the website. I think that's the gist of it -- my service on

Elliott Gue

7:00

is called The Free Market Speculator and it's here https://freemarketspeculator.substack.com/ Roger's is here: https://rogerconrad.substack.com/

Hans

7:03

Roger or Elliott A question I had that has not been answered was, is UNG a good buy at this price since it is at a 52 week low. Thanks

Elliott Gue

7:03

Thanks for the question. I am not a fan of UNG as a way to play natgas. The reason is that right now UNG holds the July 2023 futures and will roll into August in mid-June, then September in mid-August. Each time they roll, they're buying into a contract with a higher pric, so these rolls cost you money. UNG is good for trading but not when the contango (shape of the futures curve) is this steep or when it could take 6 to 9 months for my gas thesis to fully play out. In cases like this I prefer to buy high quality producers like CHK where you're not subject to that roll cost issue.

BKNC

7:10

Dominion is not doing well, it takes a long time to recover from that. The market is not seeing the convincing case of impact on actual margins. This strategic review is a massive overhang. I am very concerned about this holding; it is a long term holing with big losses. Do we believe that Dominion will get better? I understand buy low, but is this long term money wasted.

Duke Energy – I am confused. They are selling their commercial renewable energy business. At the same time you said roughly half planned CAPEX is devoted to renewable energy expansion. How can they be expanding yet selling at the same time? I am missing something. Maybe there is a distinction between commercial and residential?

Roger Conrad

7:10

I wish I could tell you definitively what the result of Dominion's strategic review will be right now. But what I can say is expectations appear to be pretty low and won't be hard to beat. And now that there's a regulatory deal in place in Virginia, the only real unknown is what assets will be sold to cut debt further. As I indicated earlier in the chat, I think a lot of the selling is momentum related with Dominion as well as Duke--and not really related to any developments at either company. Both stocks could slip a bit more and likely will if the market ex-AI stocks keeps sliding. But I still like both long term.

As for Duke, the difference is they're selling unregulated operations to focus on regulated utility rate base investment--in this case renewable energy expansion particularly solar. They'll be close to 100% regulated at that time, which should make earnings more predictable. And the proceeds from selling the unregulated "commercial renewables" arm will fund it cheaply.

Jimmy

7:10

Can you tell me how the new substack service fits into the overall newslettter offerings? For example, if one is a subscriber to Creating Wealth and EIA, how does this substack service differ or overlap?

Elliott Gue

7:10

The Free Market Speculator Substack is going to be very close to what you get in Creating Wealth for now though I'll probably add or change some features over time. You might actually find the free commentary there useful though since I occasionally offer content in response to questions I'm getting that doesn't make it into the CW service. Mainly I am offering FMS paid because I got requests from Substack users/readers who aren't members of any of our other services. I have also heard from some users who prefer the format of my Substack newsletter to the e-mail format of CW.

Willy

7:11

Roger, why are your buy under price and the dream price for XOM almost the same?

Roger Conrad

7:11

Hi Willy. That's also the case with several other stocks in our coverage universe. In any case, that's our advice of ExxonMobil (NYSE: XOM)--buy on a dip to 85 or lower.

Victor

7:13

Elliott, SLB reported good earnings. It's currently trading under the buy price. Do you see more weakness ahead or lower stock prices?

Elliott Gue

7:13

I wouldn't be surprised to see dips down to around $40 if the broader market weakens or as we approach recession. However, I see SLB worth at least $65 to $70 on conservative mid-cycle assumptions. So we see it as a buy here for intermediate-term upside.

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