JotCast | 6/29/22 Capitalist Times Live Chat

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6/29/22 Capitalist Times Live Chat

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Elliott Gue

5:09

Thank you for the kind comments. Roger and I are scheduled to speak at the Orlando Money Show this year -- We'll be there October 31st - November 1st I believe and look forward to speaking to anyone who's interested in attending. We each have 1 session scheduled and, as always, we'll be around after our sessions to answer more questions. We'll be sending out a more detailed announcement once our topics/time slots are finalized.

Roger Conrad

5:10

Continuing on Alex' question, yield seekers could theoretically choose bonds over dividend paying stocks if interest rates rose enough. But bond yields never grow and can't keep up with inflation, while stocks of good companies will. Bottom line--we're better off focusing on how interest rate volatility is affecting individual company earnings, and by extension dividend growth and returns.

Pam

5:15

Thanks again for doing these chats. Would like your current opinion of Enel SpA (ENLAY) - not to be confused wit E (Eni SpA). Bought back in March as Aggressive Income Pick. Down ever since. Not much info. Is this also a cash flow issue? Thank you!!

Roger Conrad

5:15

Hi Pam. No I think Enel has basically dropped along with most European stocks as the fallout from Russia's Ukraine invasion. But this company now appears to be on track to beat its renewable energy development targets as the primary driver of its earnings and dividend growth. The company further cut risk earlier this month by announcing the sale of its Russian operations, shedding EUR550 mil of debt in the process. And it's buying back stock as well. Shares are down this year about -30% to date but I think recovery is a matter of time--it's actually below the Dream Buy price for those who don't have a position.

Guest

5:17

Hi Elliott, in the EIA service what is the strategy moving forward as energy stocks have recently joined the bear market and have played catchup on the downside performing even worst than technology stocks in the most recent weeks?

Elliott Gue

5:17

Energy stocks haven't performed well since the peak on June 8th, but are outperforming the broader market and technology over virtually any signifiucant holding period. For example, in Q2 to date, energy is essentially flat while the S&P 500 is down 15.4%, the S&P 500 Technology Index is down 19%+ and the Nasdaq Comp is down 21.2%. Year to date, Energy is the only sector that's trading higher, up 34.4% and outperforming the S&P 500 by more than 50 percentage points. Since the end of 2020, energy is up 107.4%, besting the S&P 500's 3.9% gain by more than 100 percentage points. So, our strategy remains to 1. Use extreme rallies such as we saw earlier this year to book some gains on more commodity sensitive names. 2. Use the dips to recommend buying attractive names to benefit from what we see as likely a multi-year bull market Supercycle.

Gary

5:20

I have sent in 2 questions. Are you getting my questions?

Elliott Gue

5:20

Thanks for sending in the questions. It's been a busier-than-normal chat today in terms of volume, so it's taking us a while to get through all the questions. However, they are appearing in the queue and we will answer all of them.

Gary

5:21

With Freeport's LGN capacity down for another 90 days or so. Is now a time to load up on US and Canadian natural gas producers?

Roger Conrad

5:21

Hi Gary. I think there are certainly a number of stocks in the LNG development space worth a look. One would be Woodside Petroleum in Australia, which I've touched on today. But Kinder Morgan (NYSE: KMI) seems to me uniquely well positioned to capitalize on a growing US LNG market, both as a pipeline transporting to facilities and as an owner and developer of LNG export facilities itself.

Elliott Gue

5:24

Generally, the Freeport terminal being down is a negative for US natgas prices, because it means less demand for US gas. Also, since EU gas prices are so much higher than in the US, less export capacity reduces producers' ability to arbitrage the price differential. However, this is a short-term issue and longer term US LNG exports will be key to meeting global demand for gas, particularly in a world where Russian exports are partly off-limits. So, we do view further weakness in gas prices into the fall as likely to be an opportunity in natgas producers such as EOG and CHK, which are in the portfolio.

Sal P

5:26

Afternoon gentlemen Thanks for all your help through the years . I purchased vlo during the pandemic . At what point would you consider taking some profit . Theres been much volatility as of lately with big swings in price .Whats your guidance for the future .

Roger Conrad

5:26

Sal Hi Sal. Our current advice for Valero is for those without positions to buy under 105. That's a bit below the current price but not far enough to warrant taking a profit. The same investment deficit affecting upstream and midstream also applies to downstream companies--there just isn't enough refining capacity in North America or globally to meet normal demand. And with more set to be shut down the next few years and nothing likely to get built with government regulation so tough, the deficit isn't likely to close any time soon. A recession would cause demand to drop and arguably even stocks like Valero to dip. And taking partial profits on a move say to $140 in the near future would make us take notice. But right now this is one we'd stick with.

lee

5:31

Love these monthly chats....so awesome, thank you. would like your thoughts on mid stream, specifically where you view we are in the energy cycle. I've always understood they have their greatest move later in the cycle. I'm a bit overweight with EPD, MMP, ET, MLPX. But love the steady income stream.

Roger Conrad

5:31

Thank you Lee. Our view is we're still pretty early days on the energy up cycle that bottomed about two years ago. And again, the driver is an investment deficit for all things oil and gas that a recession would probably actually worsen, by encouraging companies to retrench further. Midstream companies as you've named survived the downturn by cutting debt and boosting efficiency. Now they're generating big free cash flows that they're using to boost dividends--and without a real recovery in system volumes. We think a recession could delay a full volumes recovery but that one will occur eventually. And in the meantime, government policies restricting new infrastructure will only boost the value of what's already built. The income is high and safe. The growth is yet to come.

Aaron

5:37

Dear Roger, I inherited some shares of LSI(Life Storage) and was wondering your views to buy, sell, or hold? I am a subscriber to the reit sheet, CUI, and the Utility investor. Thanks,

Roger Conrad

5:37

Hi Aaron, Life Storage is not a REIT I currently cover in REIT Sheet. But I will put it on the list for inclusion, as it looks a lot more interesting down roughly -27% this year and growing its 3.6% dividend at a double digit percentage rate. The basic business of self storage has proven to be one of the more reliable in property and the company is both successfully managing existing properties and developing/acquiring new ones. I think it at least rates a hold at this time but I will be taking a closer look. Thanks for the suggestion.

herm

5:42

I would think that sometime soon we will have to put more rigs to work. What are your recommendations for SLB and BKR.

Elliott Gue

5:42

Those are two of our favorite names. We like SLB because it's the leader outside North America and has a well-deserved reputation as a technology leader. A lot of their growth potential is also "rigless," meaning that they can benefit even if the global rig count is slow to recover. In my view, BKR's greatest attraction is their dominant position in key LNG liquefaction terminal components.

Aaron

5:43

Dear Roger, would you prefer to own individual munis that mature at par or the Vanguard Intermediate Tax Exempt Fund?

Roger Conrad

5:43

I think the answer depends on how large your portfolio is, as buying individual bonds generally takes more funds than a $3,000 minimum investment in Vanguard--and it will require more patience as well. I like VWITX because it's highly liquid. And I've basically used it as a source of funds in the CUI Plus/CT Income portfolio to buy stocks with, which I prefer by a wide margin as long-term investments for income seekers.

I do think that individual bonds have one big advantage over funds--that is you know exactly what your income will be. Funds are always buying and selling, especially open-end ones like VWITX which have daily inflows and outflows. But I do prefer individual stocks for income--as they can increase dividends to keep up with inflation.

Hans

5:45

Are you going to be at the Orlando Money show this year

Elliott Gue

5:45

Yes, we have accepted an invitation to speak there and will send out the exact details to all readers soon. We hope to see many of you there. At this point, we're each scheduled to speak once and will also be available to answer questions or talk after our sessions or at other times during the show.

Jeff

5:48

With what is going on with Natural gas in the past few weeks, what is your opinion on CIVI? Down 7% today

Elliott Gue

5:48

Generally, I see more downside for gas this summer but I think we'll stabilize around $4 to $5/MMbtu over the longer term. That's a good environment for natgas producers with decent reserves. Our favorites include CHK and EOG, but others like CIVI would also benefit. We'll be using dips to consider adding to our exposure in natgas.

Charlie S

5:49

Hi Roger! I would appreciate your current opinion on FAX and the safety of its dividend. I keep FAX shares so that I maintain a small bond component in my portfolio. As always, thank you for you ongoing support of all of us...Charlie

Roger Conrad

5:49

Thank you Charlie. I haven't really looked at Aberdeen Asia-Pacific Income for a while. But trading at a -14% discount to net asset value and yielding over 11%, it's looking more interesting than it has in a while. The big decline this year is due to the combination of rising global interest rates and weakness in non-US dollar currencies, including the Australian dollar, which has declined to less than 69 cents per US dollar. I think rising interest rates raise the possibility of a higher dividend--which hasn't been changed since April 2019. And the Aberdeen family is large and diversified. But net asset value has also dropped and with the heavy use of leverage (30%) there could also be a distribution reduction. I think that's priced in. But again, there's always a risk involved when you see a yield this high. And I prefer individual stocks.

Guest

5:53

Re your previous conversation on Chronic undersupply for next 5-10 years in Agricultural commodities, what are your thoughts on Farmland Partners and AGCO. Thanks, Jim T

Elliott Gue

5:53

Generally I'm favorably inclined. The farm machinery players -- AGCO, CNHI and DE -- have some supply chain issues to deal with. Also, since they're considered industrials, they can get caught up in broader market concerns about the economy. So, I think those may be slower to benefit. But agriculture is a theme I think we'll hear a lot more about in coming years and could be quite profitable. When I wrote my first book bout 20 years ago now, agriculture was a major theme and the stocks did very well during that commodity bull market. I think we could be setting up for something similar in the next few years.

jim

5:55

I would like to get out of the market with my midstream stocks that dipped 60% from my entry point - and just wont come back. My biggest loser is PAA. I also have ET, EPD, WMB and MPLX. What is your view of PAA liklihood of regaining value relative to my other stronger holdings. I would sure like to be out of PAA - but anguish bailing at a 46

Roger Conrad

5:55

I'm sure you're tired of hearing us say this. But I think the best thing to do right now in these midstream stocks is just to stay patient. As you've pointed out, even survivors with good assets like Plains All-American are way down from their highest of the previous energy cycle. And like all but a handful of midstreams, Williams, Plains and Energy Transfer was forced to cut dividends--Enterprise and MPLX were not but still trade well below the last cycle highs in 2014. All of these companies have adjusted to the current low volumes environment and are generating big free cash flows in excess of dividends--which will be increased even if the economy hits a recession. That's step one to going back to the highs of the previous cycle. And as we've also said, this one could be much more explosive by the time it runs out of steam, mainly because of the investment deficit.

jim

5:56

Sorry, I pushed send in error. I am down 46% in PAA to date. If I go to cash there is no recovery. Where would you park the money for a return over 8%, and limited downside to share price?

Roger Conrad

5:56

You could try any number of other midstream companies--including adding to others you own. But again, this is a time for patience and collecting dividends.

Arthur

5:58

Any thoughts on Intel Corp?

Roger Conrad

5:58

It hasn't been one of our favorite technology income stocks in recent years, despite the supply chain disruption of semiconductors. The yield is high and well covered by free cash flow. But the same is true of Cisco and HP, which in our view have better protected niches.

Arthur

6:11

Do you guys know anything about Diversified Energy Company PLC OTCQX International: DECPF ? Probably too speculative for your services, but it has amassed a sizable gas position and pays 11%, which normally would be a red flag for me, but they seem to have found an interesting niche. "The Company’s asset base is comprised of approximately 67,000 conventional and unconventional natural gas, natural gas liquids, and oil-producing wells. Its portfolio contains approximately 17,000 miles of natural gas gathering pipelines and a network of compression stations and processing facilities. The Company’s field operations are located throughout the states of Tennessee, Kentucky, Virginia, West Virginia, Ohio, and Pennsylvania."

Roger Conrad

6:11

It looks like they have a franchise for plugging oil and gas wells, with a geographic niche in Appalachia, in addition to modest production (up 19% in Q1). They've also acquired some production assets in east Texas, which suggests they're expanding out of that region. This is not a stock I've looked at in the past but looks interesting to check out. The main business is oil and gas production, so cash flow and ability to pay dividends is going to be affected ultimately by energy prices. But that should be a plus and there are no debt maturities until 2024, which should reduce business exposure to a recession later this year. I would call this speculative. And it's worth noting the "primary exchange" is just over the counter here, with the home market listing in the UK and corporate HQ in Birmingham, Alabama--an unusual arrangement. Bloomberg Intelligence, however, tracks 8 analysts covering the stock and all are buys. We'll take a look and thanks for the suggestion.

Dan E

6:23

Hi Roger, thanks for hosting the live chat. I was wondering what your current thoughts are on PPL after their investor day presentation they only raised the dividend to $.225/ qtr. instead of $.25. Should we see that as a sign of weakness in their business or just playing it conservative? Thanks for your thoughts.

Roger Conrad

6:23

Hi Dan. Yes, I was surprised they didn't raise it more. And I think that was at least one factor behind the drop in shares earlier this month--though certainly the general selloff including of the utility sector was the bigger factor. I don't think it's any coincidence that the current yield is almost exactly what the Dow Jones Utility Average pays. And the P/E based on next 12 months expected earnings is identical as well. That's one reason I don't think this is a sign of business weakness but of management's desire to hold in more cash to fund CAPEX and maybe cut more debt and buy back stock. Credit raters were certainly happy and I think management has outlined a pretty clear plan for how to get to 6-8% earnings growth through "at least 2025"--which means dividend growth along the same lines. That's a generally attractive value proposition for PPL as an independent company--though I think the strong balance sheet, generally favorable regulation and clear CAPEX growth path mean its also a takeover target.

Jim T

6:24

Thanks to you and Elliot for all your guicance over the year.

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