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8/27/24 Capitalist Times Live Chat

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Jeff B

7:37

Elliott, thanks for the further clarification on TLTW and FLBL. If I may go to the well one more time. Based on interest rates probably moving lower would you say FLBL is a sell? I am considering your Smart Bond Publication. I would think the portfolio would have to be managed quite actively and these items are not buy and hold. Appreciate the chats. I've been a subscriber of Roger's close to 20 years.

Elliott Gue

7:37

Sure, of course, happy to answer any questions. In Smart Bonds, I am a believer in gradual portfolio adjustments over time rather than radical moves, which can end up in "whipsaws." That doesn't mean we're not active in SB, just that I try to keep turnover down as much as possible and only respond to meaningful changes in the cycle. After all, in an ideal world, your returns from bond ETFs is likely to come from accumulated distributions and appreciation over time. So, to be quite direct, I am likely to pare our exposure to loans (b/c rates are coming down) but FLBL remains my favorite and I'll retain a stake in the model portfolio. Over time, I'll likely seek to pivot the portfolio more in favor of names like TLTW that can benefit more directly from falling rates.

Jon B

7:41

Hi. Thanks for the commentary. If you had to make a case against CVX, what would it be? Do you think they need the HES merger to succeed longer term?

Roger Conrad

7:41

Hi Jon. I think if oil prices weakened substantially from here that Chevron would lose ground along with every other energy stock--and I think it's reasonable to assume it would lose ground in a market wide selloff as well--though it's historically under owned for its size in the S&P 500 and related ETFs.

I think losing Hess would force some shift in strategy. I think the current share price does reflect that possibility--as it dropped from 160 plus to the mid 140s immediately following the news earlier this month that the arbitration case might not be resolved until mid-2025. On the other hand, Chevron has a balance sheet stronger than that of most countries and its global output of oil and gas was up 11% in Q2, thanks to a massive position in US shale (Permian and DJ Basin). I still believe the most likely scenario is a deal between Exxon and Chevron that's amicable and promotes Guyana investment. But I'm not inclined to sell my shares on risk the Hess deal doesn't happen--or Hess Corp for that matter.

Denisimo

7:46

Further to a previous comment, if Marathon Petroleum took over MPLX - would that be a taxable event?

Roger Conrad

7:46

Hi Denisimo. That would depend on the terms, though the assumption is it would be whether the payment were in stock or cash. Marathon is a C-Corp, whereas MPLX is an MLP.

That said, potential taxes are a big reason why a deal probably won't happen--just as it didn't when MPLX was at a much lower price in the previous decade, or when it went below $10 in 2020. And MPLX is right now a good fund raising vehicle for its own operations, which contribute a lion's share of MPC's own earnings.

If the taxable event can be mitigated, a deal is certainly possible. But I think it's more likely things just go on as they are. Also, if Marathon ever sold its MLPX it would incur a pretty hefty tax bill--so that seems unlikely as well.

Robert PHX

7:52

Hi Roger/ Elliott. Thanks for you dedication to the monthly webchats. Wondering what your thoughts might be for Algonquin for the next couple years. They just lowered their dividend again. It seemed like they were going to get their debt in order without cutting dividend. Do you think it may be five years or so before there stock price gets back to the $15.00 pr share price again or even $12-13.00 range? Thanks...

Roger Conrad

7:52

Hi Robert. I'm planning a "rags to riches" piece for the CUI feature article in September. As I wrote in the CUI Alert earlier this month, the dividend cut surprised me as well as most others following the company. I don't think anything else has changed here. The main objective of management right now is still to cut costs and debt--and the sale of the renewable energy business is at a better than expected price, so it should accelerate that. They're taking a very conservative view of their utilities by cutting back CAPEX until rate cases are decided. But Algonquin still looks like any of the dozens of utilities over the last 100 years that have gotten into trouble and had to repair regulatory relations and cut debt. I don't think they will wind up selling off all the utilities and ultimately getting bought at a discount, as the former Aquila did in the 00s--mainly because they were able to get real value for their unregulated operations.

Roger Conrad

7:53

I do think Algonquin will get back to a price of at least 12-13 over the next couple years. But if history has taught us anything, it's that utility recovery stories--while basically inevitable--take time to unfold, and patience for investors to capitalize on. Again, look for more in the September CUI.

Fred

7:56

It's a given that interest rates are coming down. That will benefit gold, but what others companies denominated in foreign currencies will get the biggest boost

Roger Conrad

7:56

I like the Canadian and Australian stocks I've recommended in Conrad's Utility Investor and Energy and Income Advisor. But we should also see less pressure on the Japanese Yen, Mexican Peso and even the Euro, as US monetary policy better aligns with the rest of the world. And though the Hong Kong dollar is pegged to the US dollar, I think our CLP Holdings should get a boost as well--as pressure on the peg diminishes and the HKD value of its Australian and Indian Rupee revenue increases.

Robert B

8:00

Really enjoy spending the afternoon with you guys and attendees. You have any thoughts for or against Coterra Energy or Sitio Royalties ?

Roger Conrad

8:00

Thank you for those kind words. We do cover Coterra Energy--which by the way is another oil and gas producer that pays a variable dividend--and rate it a buy at 22 or lower. It's a solid company and ultimately a takeover target--raising 2024 earnings guidance earlier this month following strong Q2 earnings. But as we've seen over the past year, a little patience building a position by waiting on a good price is key.

Sito Royalties is another one we could add to coverage in EIA at some point. The dividend is highly variable but that should be a good thing as the energy upcycle unfolds in coming years.

Guest

8:04

Roger, Elliott - these sessions are appreciated. I have held SRE Sempra for a long while & it's gone essentially nowhere for me. I'm had illness in the family keeping my attention off my investments but help out here. Is SRE a LNG play or a conventional Ute play?

Roger Conrad

8:04

Yes, Sempra Energy is probably the lowest risk play on LNG around--as those operations are attached to strong utilities in California and especially Texas.

LNG facilities are like large baseload coal and nuclear power plants--they take years to site, permit, finance and build, and it's therefore years before they start to add meaningfully to cash flow. But in Sempra's case, the projects are fully funded and contracted, as well as getting built on time and budget. The stock has returned about 11% year to date and it's right now in the neighborhood of making a new all-time high--not as exciting as a Big Tech stock. But it's a very solid company paying a growing dividend that you can basically set and forget--ideal for dividend reinvesting as well.

Guest

8:09

Continued - Is SO poised for "significant" upside with Vogtli on line? Are National Grid NGG, NEE & SRE in the same potential group as SO for capital appreciation? Thanks for these chats. Very helpful & insightful.

Roger Conrad

8:09

I think Southern at a mid-80s price already reflects the success opening Vogtle--and getting regulators in Georgia to grant a fair return on investment. My highest recommended entry point is still 80. And I don't intend to raise it until management starts boosting dividends at a rate comparable to the 5-7% annual earnings growth guidance. I neglected to mention above that Sempra is actually trading above my highest recommended entry point of 78. So is National Grid trading in the mid-60s. And NextEra Energy is nearly to its uppermost buy target of 80.

Bottom line: These are great companies and I think they'll go a lot higher over the longer term. But I would wait for lower prices to buy for most of them.

Guest

8:15

Please explain what HASI actually does to earn revenue? I've never been able to find a definition / explanation that made sense to me.

Roger Conrad

8:15

Hannon basically makes investments--most are loans and some are equity. What it earns is the difference between returns on investment and cost of capital.

The loans are primarily to corporations and governments for projects that reduce energy costs and/or reduce air and water emissions. The equity investments at this point are ownership stakes in contracted renewable energy facilities operated by others.

This is what business development companies (BDCs) do. Hannon is unique in that it dominates a niche where demand was growing rapidly before the IRA tax credits and is now growing even faster. That's enabled it to increase investment returns faster than interest rates have risen the past couple years--and lower rates should provide a tailwind in coming months. But it's all about knowing your market and--while it's not a utility and I watch every quarter for signs of weakness--Hannon has proven time and again that it does.

Jim D

8:16

Like to see a publication on Covered Call Funds. JEPQ, NUSI, QYLD, SPYI, etc. I trust you two guys can provide a service to facilitate good decisions on these rather challenging ETFs to fully understand and evaluate. I subscribe to 4 services already, It will be 5 if you release a service on Covered Call funds. Your no smoke & mirrors honesty is at the top of my publications list.

Roger Conrad

8:16

Thanks for that Jim, much appreciated. We'll take it under advisement.

David K

8:17

Hi All:
Whats the status of TLTW. Did I miss a sell recomendation?

Roger Conrad

8:17

Hi David. I'll just repeat what Elliott said answering an earlier question:

No, I still like it. My last article on TLTW is here: https://open.substack.com/pub/smartbonds/p/double-digit-yield-trap-or-...

Roger Conrad

8:18

Ok. Well that looks like all we have in the queue for now--as well as everything we received via email prior to the chat. We'd like to thank everyone who joined us today. As always, you've given us a lot to think about. And I hope our answers will be helpful to all of you.

8:19

As always, you'll be receiving a link to a transcript of the complete Q&A tomorrow morning. And of course, if for any reason we didn't fully answer your question, please give us another chance by sending it to service@capitalisttimes.com

Robert B

8:20

Thanks for the afternoon session. Take care.

Roger Conrad

8:20

Thank you again Robert.

Roger Conrad

8:20

Wishing everyone a Happy Labor Day weekend! Here's to a profitable rest of 2024!

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