JotCast | 8/24/22 Capitalist Times Live Chat

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8/24/22 Capitalist Times Live Chat

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Roger Conrad

5:33

Nice work Victor. My thought then was that so long as parent NextEra Energy (NYSE: NEE) was dedicated to building up NextEra Energy Partners (NYSE: NEP) as a renewable energy financing vehicle, we really couldn't lose with NEP. And during all of those early years, management was steadfast with its financial support and providing downdown transactions on reasonable terms to fund NEP's dividend growth rate of 12-15% a year. The current NEP is proven itself capable of funding its own transactions. And a new deal on incentive distribution rights for NEE has further cut cost of capital.

At this point, I would only buy more NEP on a dip to 80 or lower--which is my highest recommended entry point. And if we did see a move over $100, I would recommend taking a partial profit in both NEE or NEP. But at this point, the underlying business is set for more growth as parent NextEra ramps up wind, solar and storage and steadily drops down assets. And revenues are secured by long-term contracts, so recession risk is low.

Guest

5:40

Hi Roger. My question is about DEA. Why is it sitting well off its highs? Anything going on we should know about? Thanks for your insight

Roger Conrad

5:40

I will have a full recap of operating performance and guidance for all the REITs in our REIT Sheet coverage universe next month including Easterly Government Properties (NYSE: DEA). My view is shares have been weak along with most REITs, though investors have were also disappointed by the lack of a dividend increase in late July when we might have expected one. I thought Q2 results were generally solid--the dividend was again solidly covered (payout ratio 80.3%) and management was able to push forward with several asset acquisitions to lift future revenue, while generally holding down cost inflation. The REIT also maintained 2022 guidance. But it looks like a dividend increase is needed to move the shares off the current level, which is actually a lot closer to the 52 week low than the high. I'm still rating DEA a buy at 23 or lower for more aggressive investors in the REIT Sheet.

Willy

5:45

Roger, in light of your caution regarding the immediate outlook for energy stocks because of the recession risk, what advice can you share regarding some recommendations selling well under your buy under price? I am referring to picks like, KMI, ET, SLB and BKR. Thanks

Roger Conrad

5:45

Hi Willy. The rule of thumb is they're all buys so long as they trade below our highest recommended entry points/buy under prices--and underlying businesses stay solid. And as I think we demonstrated in the current issue of EIA (August 22), all of them are performing well as businesses.

Energy stocks are still outperforming by a wide margin this year and that includes these stocks. I think we have to be prepared to see them come down a bit if the overall stock market declines in a deepening recession. But that outperformance will continue to unfold as this energy price upcycle continues to progress. So again, we be patient with new purchases now but definitely ready to add to positions on meaningful price dips. You might also place buy limit orders at Dream Buy prices for stocks you want to add to.

Mary

5:47

I keep hearing mutterings about the large Africa oil discovery and Reconnaissance Energy. Do you know anything about them?

Elliott Gue

5:47

I've read a little bit. It's called the Kavango Basin and its in Namibia (onshore). The stock shot up when they announced results from their first 3 wells, basically just showing there's oil there. However, since that time, the stock has fallen back. The key thing to remember is that this is very early days and they haven't really proved out the extent or economics of the play. I am always more than a little suspicious of any small company (really a penny stock) that announces and hypes up an early stage discovery like this.

Nolan

5:53

Any news on AGLXY they have not moved much in the last month

Roger Conrad

5:53

Hi Nolan. AGL Energy actually posted better FY2022 (end June 30) results than most people expected, including the semi-annual dividend it ultimately declared. And management generally stuck to its previous assertions that FY2022 would mark a nadir in the company's fortunes, with improvement for FY2023 and beyond.

I think what people are waiting on--and why the shares have been basically flat for a while--is what sort of strategic plan is hammered out between Mike Cannon-Brookes (the largest shareholder) and management. That's likely to include a faster phase out of coal-fired electricity, a faster build of renewable energy/storage and a ramping up of the retail energy business. And it may include support from Australia's Labor Party-led government. The report is currently expected by the end of September. Until then, I'm still rating AGL's US ADRs (AGLXY) as a buy up to 7 for patient, aggressive investors.

Don

6:04

Big run ups this year in CWCO (in at 10) and SOHO (in at 1.90)- are these starting to get to take some off the table levels or should we let them ride for longer. Thanks guys.

Roger Conrad

6:04

Hi Don. Nice job on both of those, particularly Sotherly Hotels, which I've been pretty consistently rating a hold in REIT Sheet. The hotel business has certainly improved over the past year. And this refurbisher of hotels in multiple markets is once again acting like it did when I first recommended it, though it still hasn't quite made it back to the level I unloaded for a loss in the CUI Plus Portfolio. I saw pretty much positives in Q2 results and guidance. I think a recession will delay full recovery and take the stock lower again, but it does look like SOHO has turned the corner as a business.

Consolidated Water is also in the midst of a big recovery, as tourism returns to the Caribbean islands it serves and the water infrastructure construction arm continues to win new business. Shares are now a bit above my highest recommended entry point of 14, so I effectively rate them a hold--and I would expect a return to that price in a renewed stock market selloff.

Sal P

6:10

Good evening Roger & Elliot Late to chat ,Would like to know your thoughts on oxy ,as the price keep rising and not sure why other than Buffet . At what point do you feel is a time to take some money off the table

Roger Conrad

6:10

Hi Sal. It's something we're thinking about. Current advice is still buy up to 55. And Q2 results and guidance again confirmed this company is on track to continue generating a lot of free cash flow, which is why Berkshire is interested in it. I would agree this latest move is at least partly because of the Buffett filing to own up to 50% of the shares, which FERC has approved. And not even that interest will support the current share price in the event of a recession and another meaningful drop in oil prices. So while no change in our advice at this time, we are increasingly cautious and will likely have something to say about OXY soon--especially if it keeps moving higher.

D.R.

6:18

Does your research still suggest that the S&P 500 could easily fall to 3,000 to 3,100 before the end of this year as part of the second round of this bear cycle and what would this do to the utilities and reits you are recommending now.

Roger Conrad

6:18

if there's a recession it certainly could. If that were the case, I don't see any reason why popular REIT ETFs wouldn't fall almost as hard, since they've basically tracked the S&P 500 this year anyway. I think the REIT Sheet Recommended list should fare quite a bit better, since we've focused on a mix of the idiosyncratic not found in ETFs, higher yields/lower valuations and recession resistant businesses. But when the stock market takes a hit like that, there are going to be at least some losses in pretty much everything. And while utilities will continue to be boosted by reshoring of investment, popularity of all-US businesses, relatively low valuations, recession resilience and the massive tax credits from the Inflation Reduction Act, they're likely to take hits too.

The difference maker for income investors particularly is underlying business strength. So long as that's intact, companies will grow dividends and stocks will recover in short order when the market stabilizes. And we'll want to stick.

Mr. G

6:24

"What's your best place today for new money, for both the highest current income and future growth of price and income?"

Roger Conrad

6:24

Well, I hope we've given you multiple good answers to that question in this chat. Other than that, I think you guys can probably glean from this chat that we're still quite bullish on the value proposition offered by energy stocks--despite the growing risk of a recession that would likely knock their prices down a peg or two. And Energy and Income Advisor readers looking to invest fresh money should be sure to check out the August 22 issue now posted on the website--particularly the top picks we highlight on the last couple pages in the the feature roundtable. I'm still very positive on the August focus stocks in Conrad's Utility Investor. And of course, Elliott offers a model growth portfolio and I run an income portfolio for our Capitalist Times advisory, which we also offer separately for example income as CUI Plus.

Roger Conrad

6:27

OK. Well that looks like all we have in the queue for this month, as well as from emails received prior to the chat. If for any reason you feel like your question was not fully answered--or if somehow it was misplaced--please drop us a line at service@capitalisttimes.com and we'll take another swing at it.

6:29

As we said earlier, we will be sending you a link to the transcript of the complete Q&A in the near future. And it will also be posted on our various websites.

6:30

OK I see we have one more.

Fred

6:31

Thank you both.

Roger Conrad

6:31

Thanks Fred. See you next month.

RBB

6:32

Thanks for an informative afternoon. Take care.

Roger Conrad

6:32

And again, thank you for participating today. We really appreciate it and look forward to chatting with you next month--or before that by email if you like.

Roger Conrad

6:33

Bye for now everyone. Have a great rest of the summer and happy Labor Day weekend.

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