You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
Return toCapitalist Times
6/27/24 Capitalist Times Live Chat
powered byJotCast
Prev Page View Full Chat Next Page
AvatarRoger Conrad
2:03
REIT Sheet and CUI Plus. Energy and Income Advisor also has a focus on high yielding stocks. As far as BDCs, I would say they're more or less something I recommend when I see an opportunity--HASI being an example. I don't have a dedicated service at this time, however.
 
Q. Great chat last month. Please throw this missive into the mailbag for June's chat. Just an observation-I've been in the 0-1 rate cut camp all year. I now believe there will be no rate cuts this year unless the economy completely falls off the rails. The economy is slowing compared to last year's GDP numbers, but is still on the rails. And, with the election drawing nigh, I don't think Mr. Powell has any desire to run a ship into a bridge.
My query is thus-we have conversed in the past about beneficiaries (companies) that might be primary AI plays. Your point, and rightly so, was that the power producers-read Constellation Energy/NRG for example-will be primary AI beneficiaries. I'm gonna show my ignorance a bit by asking what about the
transmission of energy from the producers to the utes to the capacitors and transmission lines to the ultimate user? This is not a "last mile" thing as there seem to be many stopping points along the way. Are there utes or industrial infrastructure companies that might be corollary beneficiaries due to the extension of power grids to serve AI users?—James G.
 
A. Hi James
 
Constellation Energy and Vistra Energy (among other stocks) have been declared AI beneficiaries and so have pushed to very high prices this year. We've done well with them but I think they're a little overdone at this point, despite being pretty solid franchises and definite beneficiaries of rising demand for electricity.
 
I think the simplest and safest way to bet on increased use of electricity from AI-enabled data centers is just to buy the utilities--the investment they make goes into rate base, which lifts earnings and dividends. That includes any generation they build but also any transmission/distribution to get it to the end user.
2:05
And in 36 states, the entire business is a regulated, vertical monopoly. I think contract renewable energy companies also stand to gain, particularly if they've been successful winning corporate contracts. And these stocks like Brookfield Renewable are only now starting to get some attention. Brookfield also owns 50% of Westinghouse, which makes it a global player in large nuclear as well as SMRs. I think GE's recent spinoff GE Vernova is also interesting as an equipment company--both for helping utilities meet demand and for equipping utilities with AI to improve operations.
 
Anyway, these are topics I've been writing extensively about in Conrad's Utility Investor this year and I have a large number of recommendations there. Some have already run like Vistra but others I think are just getting started. And as I noted answering a question earlier, I will be focusing on one area of opportunity—nuclear—in the July issue of CUI.
 
Q. I just saw Roger's free article on Substack regarding Vistra Corp (NYSE: VST).
I purchased some Vistra at his suggestion after reading about it in his Utility report and have benefitted greatly. In the article, Roger suggested considering taking some money off the table and putting the funds in other energy stocks with the potential to take off like Vistra. Does Roger have three or four companies to consider? What percentage of Vistra would he suggest trimming? Thank you--Arthur H.
 
A. Hi Arthur
 
First of all, thank you for subscribing to my Substack column. For those unaware, it’s complementary to all readers. Just go to substack.com and “Dividends With Roger Conrad” and you’ll receive the current one every Sunday around 12:15 pm. Elliott also has a Substack column.
 
The advice I've been giving in CUI when my recommended stocks trade above the "consider taking profits" level is to consider selling about half the position. Vistra has come down a bit the last few days. So the timing of a sale isn't as good as it was a few days ago obviously. But pruning is I think still a wise
2:06
strategy, as the stock is still up 126% year to date.
 
As for where to put the money, my two best fresh money buys every month are the Conservative and Aggressive focus stocks. I'll have a couple more when the July issue posts. I've also written quite a bit about renewable energy and AI bets the past couple months. So stocks featured there are also strong buys, provided they're still trading below my highest recommended entry points. And of course, nuclear will be the focus of the July issue feature article.
 
 
Q. Hi Roger:
 
I've been a bit behind lately on my investment business so I apologize if you have discussed all this in the most recent chat or in the latest EIA report.
 
I own a bunch of ERF and note that it was merged(been take over) by Chord Energy--CHRD –I have never heard of Chord  so obviously don't know much about it. But I do know ERF well and lately it has been very good to me. What say you or have you said about this merger. Is it a good thing? should I have made some move regarding ERF
2:07
move regarding ERF pre merger? Thanks so much for everything I am financially in pretty good shape thx to you !!!
Best Regards--Jerry F.
 
A. Hi Jerry
 
Here's what I wrote about Enerplus/Chord in the May issue of EIA, the Endangered Dividends Section:
Enerplus Corp (TSX: ERF, NYSE: ERF) is paying shareholders of record May 30 a “special cash” dividend of 23.2574 cents on June 4. The payment equalizes Enerplus’ quarterly dividends to those of the company’s acquirer Chord Energy, with the transaction now expected to close May 31. Under the terms of the merger, Enerplus shareholders will receive 0.10125 shares of Chord Energy (NSDQ: CHRD) along with $1.84 per share in cash, in addition to the special cash payout. That’s a total value of about $20.04 per ERF share, based on Chord’s closing price May 24.
After the close, shareholders of the former Enerplus would receive quarterly dividends of about 30 cents a share, based on Chord’s most recent dividend payment. That too looks like a huge win, as the company had only been paying 6.5 cents a quarter. But investors should also note that Chord’s dividend is highly variable, ranging in the past two years from $4.80 per share in March 2023 to just $1.36 in August 2023. Since dividends are closely linked to commodity prices, that should be a good thing for investors. And following the close of this deal, we intend to pick up coverage of Chord, which remains relatively small at a market capitalization of $7.5 billion and has a strong presence in the Bakken. Hold Enerplus through the merger but Chord is for aggressive investors only.
 
I have since added Chord to the Canada and Australia coverage universe in place of Enerplus, starting as a buy at 170 or lower. It’s also on the list of variable dividend companies highlighted in the current issue feature article,
which posted this week.
 
Regarding the merger, there may be a tax on the cash portion of what Enerplus shareholders receive, depending on the entry point. But the stock portion is not taxable. Hope that answers your questions.
 
Q, Hi Roger:
Quick question about PAA v. PAGP. 
1.   The possible future merger by PAGP with another suitor. Would any premium for PAGP also be reflected in the PAA share price when such merger offer might occur?
2.   The reason I ask is I think I blew it!!!   I have been purchasing PAA stock (instead of PAGP) because of its MLP tax benefits while also thinking that it too would realize a premium from a merger offer. But why would it if the offer were for PAGP?
Appreciate your thoughts. Thanks as always!!!! Best--Barry J.
 
 
A. Hi Barry
 
PAGP is really just another way to hold Plains All American Pipeline. It has no other assets. It's certainly possible the Plains group would elect to consolidate them at some point. But it's also hard to see a real advantage to doing so at this
2:08
time.
 
My view is a third party will eventually take an interest, especially now that recontracting is coming in much stronger than what was once expected and that the Santa Barbara oil spill case appears settled. If that's the case, it really won't matter whether you own PAGP or PAA--any takeover will have to buy out both at basically the same price. Hope that answers your question.
 
 
Q. SLB hasn’t been doing too well. Still a good bet longer term?--Kiwi
 
A. Hi Kiwi
 
We think so. Services companies like SLB tend to be among the last energy stocks to take off in an energy bull market--the reason being that oil and gas companies will only then really fire up production plans, which not only increases demand for services offered by SLB and its rivals but allows them to raise prices as well. As we've noted, so far oil and gas producers are not really increasing capital spending but are instead returning free cash flow to shareholders as dividends and stock buybacks. We believe we'll eventually see that
lift. In the meantime, SLB shares are likely to follow oil and gas prices up and down. But as we've noted in EIA, the underlying business is sound. And in fact, we believe the company will continue to gain market share in key areas as the largest, best run and financially strongest in this sector. We intend to stick with it.
 
 
That's it for the questions we received prior to the chat. If for some reason yours wasn
2:09
wasn't fully answered, please resubmit it to the chat at this time.
Now let's get to some live questions.
Kerry T
2:15
Hi Roger and Elliott:

In my brokerage account I saw the following

6/5/2024 - CHK paid dividend $398.26
6/25/2024 - CHK reversed dividend $398.26
6/25/2024 - CHK paid dividend $320.28
So I received $320.28 instead of $398.26.

It looks like they decided not to pay the 14 cent/share variable part after all. regards
AvatarRoger Conrad
2:15
Hi Kerry. I don't think that's correct. The amount of the dividend declared April 30 is 71.5 cents per share, 57.5 cents the base payout and 14 cents the variable payout. There was no reversal on June 25. I'm not sure what the mixup might be at your brokerage but this sounds like a material error worth checking out.
Kerry T
2:19
Hello Again:

This morning 6/26/2024, I received an additional dividend of $77.98 which puts me right back to the original amount of $398.26.

regards
AvatarRoger Conrad
2:19
Ok that sounds right. In any case, companies that pay a combination "variable" rate and "base" rate dividend make only  one payment to shareholders, not two separate ones. So it might still be worth finding out the reason for the confusion. Glad it worked out at least for the payment.
Mark P
2:23
If we end up with a more positive approach to oil production in the US what companies or areas of the energy market would do better or worse if the price of oil drops?
AvatarElliott Gue
2:23
I believe you're asking about US policy towards energy production?

In the current cycle, large US oil producers have been tying capital spending (CAPEX) to free cash flow. Effectively what that mean sis that when oil prices trend significantly lower over time, you're likely to see a decline in drilling activity and flat/declining production over time.

The exception has been the smaller independent producers that dressed up their production in the first half of last year to improve their valuations in a sale.

With the industry consolidating there are, however, a limited number of independents out there. That means CAPEX decisions are likely to become even more disciplined over time.

So, I don't think that any change in US policy towards the industry that would drive increased US oil production -- it's all a matter of economics and free cash flow.  If the price of oil remains near current levels, I suspect you see some modest growth in US oil production over time; however, I continue to believe shale is
AvatarElliott Gue
2:23
maturing and will see a plateau over the next 1 to 2 years. Hypothetically, refiners can benefit from a decline in oil prices provided gasoline and diesel demand remains buoyant. Midstream can also benefit from lower oil prices via increased volume moving through their infrastructure.
Clint W.
2:34
Roger/Elliott,

What is your confidence level regarding the ability of NEP to serve as a long-term funding vehicle for NEE?
AvatarRoger Conrad
2:34
Hi Clint. I think NextEra definitely wants NextEra Energy Partners to be a viable funding vehicle again. And management is clearly willing to wait at least through the end of 2026 for capital markets to improve enough so NEP can again absorb drop downs--as it was in 2015-16 when NEP was also unable to for an extended period of time.
What's happened since NEE and NEP updated guidance earlier this month is a trio of analysts are now recommending selling NEP, based on the risk NEE will either be unable to or else choose not to help NEP refinance convertible obligations maturing starting in 2027 that are tied to various assets. That would throw NEP back on its own resources and very likely force a dividend cut.
My view is (1) shares are already pricing in a worst case dividend, (2) even a temporary lessening of capital market pressure in the next 30 months would be an opportunity to eliminate the financing risk and (3)NEE can afford to support NEP indefinitely if it so chooses.
AvatarRoger Conrad
2:37
Bottom line: I think we have time to keep our bet on for NextEra Energy Partners. Long-term downside risk from this price is low, even if they do cut the dividend as bears speculate. And if they can return to being a funding vehicle in the next couple years, the share price is likely to be 2-3X what it is now.
Diane Q.
2:40
Good morning Roger and Elliott,

I don't know if this belongs in the live chat, but I wanted to thank you for the Smart Bonds service. You explain things so clearly and I've learned a great deal about a subject that was a total mystery for me. My portfolio has done quite well with your other services, and look forward to success with this one.

One question: I have set up a separate account just for the recommended ETFs but understand that bonds would normally be considered "fixed income". However I don't need the income right now, though expect to in a few years. Do you advise automatic reinvestment of the pay outs, or keeping the cash? If keeping the cash, where do you suggest holding it? (My investments are all with Schwab.)

Thanks again
AvatarElliott Gue
2:40
Thank you for the kind comments about Smart Bonds and our recent presentation.

A good question regarding the monthly cash distributions for portfolio recommendations. Our plan for the model portfolio is to assume readers accept the cash distros and then simply place those funds in an interest-bearing account such as a money market fund. One that we've recommended in our services is the Vanguard Money Market Fund (VMFXX), which currently offers a yield of about 5.25% to 5.30%. Some brokers also just sweep idle cash balances into a cash account that pays out a competitive rate of interest.

Each quarter or so, we'll likely be putting those idle cash balances to work, either into new recommendations or increasing positions in specific portfolio holdings.

We do think there's an advantage to keeping the distributions in cash so we maintain the flexibility to direct that cash in favor of ETFs we think are best-positioned at any given point in time.
AvatarElliott Gue
2:40
For readers unfamiliar with our new Smart Bonds service, we're offering special rates and a 60-day risk-free trial to existing readers of our other services -- the website to check it out is right here: https://conradsutilityinvestor.com/smart-bonds-with-lifetime-option
Jeff V.
2:41
Hello Roger,

New lifetime member of your REIT Sheet and longtime subscriber to your Utility Investor newsletter. I’ve benefited from your research and recommendations. Question, you’ve been relatively quiet on Reality Income. I think it’s a bargain based on its strong history of dividend payments and current low price relative to its cash flow and dividend payments. Your thoughts?
AvatarRoger Conrad
2:41
Hi Jeff. I've consistently rated Realty Income a buy in REIT Sheet precisely for those reasons you list. I have extensive comments in the REIT Sheet databank attached to the current (June) issue. The highlight was the increase in 2024 adjusted FFO guidance, as it's successfully absorbed the Spirit merger. I think it has an attractive value proposition with a 6% plus yield growing at a low to mid-single digit percentage annualized with quarterly increases. And though shares are underwater this year, I still rate them a buy at 70 or lower.
Larry E.
2:45
You didn't comment on Smart Centers symbol cwyuf or Canadian symbol SRU-U. Do you feel the dividend is safe and is the stock bottoming or still slowly declining with the market? Thanks.
AvatarRoger Conrad
2:45
Hi Larry. The June REIT Sheet has extensive comments on SmartCentres in the databank table. That's in addition to the Q1 earnings comments in the May issue, when I reviewed the vast majority of results and guidance updates for the REITs on the Recommended List. There's no change in the advice, which is buy at USD25 or lower. FFO and net operating income continue to rise as leasing activity is successful and occupancy remains high--even as development moves ahead and management controls operating and CAPEX costs. As I've said, no one should expect a dividend increase as the development program continues. But the payout ratio dipped to 88.9% and management is committed to paying out the current level.
Frank
2:53
I would like to add a conservative utility and am looking at WEC and EXC which have both been previous focus stocks. At this point in time which would you choose? And you could throw AVA into the mix. On AVA, you've referenced it as aggressive pick but I see it in the conservative portfolio
AvatarRoger Conrad
2:53
Hi Frank. I think all three of those utilities are trading at great entry points now, after coming off solid Q1 results and updated guidance. Avista is moving into wildfire season as are other western state utilities--which is likely to weigh on the share price near-term. But at least one of its states--Idaho--has enacted pro utility legislation regarding wildfires. And it has programs in place in its most important state Washington as well. Exelon and WEC have been punished because they have utilities in Illinois--and the regulatory environment is seen to have deteriorated there over the past year. But both have stuck to investment plans and growth guidance by shifting investment to other states. And I expect them to affirm it again in late July/early August when they report Q2 numbers.

The best fresh money buys are always the Focus stocks--one Aggressive and one Conservative. And I'll have two more for readers in the July CUI that posts on the 8th.
Victor
3:01
Hello guys and thank you for this service.  Bill Gates invested a billion dollars of his own money into his innovative nuclear power start-up TerraPower. Gates and Warren Buffett are betting big money on nuclear power. What companies are best positioned to take advantage of what it seems to be the rebirth of nuclear power? How do you like VST?
AvatarRoger Conrad
3:01
Hi Victor. Bill Gates' TerraPower has two exciting new designs for nuclear reactors in development that could reduce system complexity (and cost) considerably by not relying on water for cooling--the "Natrium" prototype now waiting on approval from the NRC with non-nuclear portions of the prototype under construction in Wyoming, and another chloride-based system in co-development with Southern Company.

On the other hand, even in a best case at the NRC, the Natrium reactor will not be producing energy until after 2030. Southern's CEO says he's in no hurry to start another Vogtle project. And Dominion appears to be turning to a combination of natural gas and solar in South Carolina, rather than restart the Summer nuclear construction project.

I think there's money to be made here. And my July issue of CUI will be looking at the best ways to play an eventual nuclear renaissance in the US. But there's also a great deal of hype about nuclear right now, which means a lot of room for disappointment and risk.
Jack A.
3:01
Hi Elliott:
There was an interesting article the other day in the WSJ about the oil sands companies in Canada. I found it particularly interesting that they seem to be returning much of their cash flow to shareholders, and paying a nice return, since they have reduced their debt to a satisfactory level. But I found disconcerting the paper's reminder that shale drilling companies will run out of oil much faster than the oil sands drilling companies. The questions are: How do you feel about the oil sands companies such as Canadian Natural Resources, Imperial Oil and Suncor as an investment, and what is your timeline for the decrease in oil production in the shale areas of the Permian presenting a problem?. I guess I'm most concerned about my holdings in the MLP pipeline companies in the shale drilling areas.

Thank you
AvatarElliott Gue
3:01
Let me start with the first part of your question -- the Canadian names. I like the names you just mentioned -- we've recommended Suncor and CNQ in the past, though  it has been a while now.  Over the past couple of years we've mainly focused on the US shale names because we felt the near-term growth prospects were superior. However, I think they'll all benefit from the higher-for-longer oil thesis we have expressed.

As far as shale production is concerned, including key regions like the Permian, I think we're actually closer to a peak level than the consensus believes. Production growth is already slowing dramatically and the most likely scenario in my view is that we reach a plateau of output in the next 12 to 24 months rather than an outright decline. In many ways that's likely to be driven by the fact producers in the Permian increasingly see that their inventory of prime low-cost drilling locations is finite and they don't want to drill through that inventory too quickly. Remember, big producers like
AvatarElliott Gue
3:01
Exxon and Chevron -- increasingly buying up prime shale acreage -- like to build up projects to a sizable plateau of output and then seek to hold output at near those plateau levels for as long as possible. These companies aren't really in the business of rapid production growth. I think peak US production is probably no more than 500,000 to 1 million bbl/day above the current level. I do think this scenario will be (very) bullish for oil -- once market participants realize that shale alone can't accommodate the sort of growth we're seeing in global demand, prices are likely to rise to a higher average level. And that would be bullish for energy stocks across the board as well.
AvatarRoger Conrad
3:02
Again, I'll have a lot more about nuclear in the July CUI posting July 8. It's also the subject of this coming Sunday's Substack piece. If you want to read it--as well as everything else I've done in substack, just go to substack.com and search "Dividends with Roger Conrad."
Sohel
3:06
Hi Roger, You have a hold on XOM in the actively managed portfolio but in these chats you and Elliot are frequently quite bullish on it. Is this just a price issue? What is your buy under price for XOM?
AvatarRoger Conrad
3:06
Hi Sohel. It's basically a price issue. ExxonMobil has come down from its April high of $123 and change. But other than automatic dividend reinvestment, we'd prefer to buy more on the next dip to 100 or less, a level visited by the stock for several weeks this winter.

In contrast, there are several other recommendations on the natural gas producer side that are now very cheap--and that's where we'd allocate fresh money at this time.

I would also add that we advised taking the XOM shares when ExxonMobil acquired Pioneer Resources. So our position is pretty much topped up in the Actively Managed Portfolio.
Connecting…