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9/24/24 Capitalist Times Live Chat

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Elliott Gue

4:26

Thanks. Yes, I like FALN and it remains a recommendation in the portfolios. FALN owns bonds issued by companies that are now "junk" but were formerly rated investment grade. The yield on FALN is competitive with a pure "junk" ETF like JNK or HYG; however, historically, fallen angels have carried lower credit/default risks than your average junk bond. With that duration near 5, FALN will benefit from falling rates; also, lower rates tend to reduce credit risks for high yield issuers. And, yes, Sherry is the best! I've worked with her for more than 20 years now, and I don't think we could do what we do without her.

Hans

4:30

Roger, I think in one of your talks you mentioned CHRD an oil company, but it is lagging behind other companies, why? Thanks

Roger Conrad

4:30

Hi Hans. Chord pays a variable dividend. I consider that an attraction long-term, especially after the Enerplus merger. But it's not too surprising the stock would underperform with oil and gas slumping this summer. We do expect a rebound for both commodities and would look for that to eventually raise Chord's cash flow, dividends and share price. I would also point out that Chord shares have returned 521% since November 2019 versus 83% for the S&P 500 Energy Index--so despite underperforming this year a bit, it has been a pretty big winner the past few years.

Hans

4:38

Elliott, WDS it has a nice dividend 7%, but the stock is down 25 % so far this year what is your outlook for this one. Thanks

Elliott Gue

4:38

I like the Woodside story longer term. I think around 50% of their portfolio is now levered to liquefied natural gas (LNG) and I believe that's a growth market over the intermediate term. Near term, two things have been weighing on them in my view. One is that due to recent acquisitions and organic growth projects, their capital spending has ramped and their debt ratios have been rising. I think those investments will pay off, but rising debt (or gearing as it's known in the UK and Australia) tends to make the market nervous. Second, I think we'll need to see a bottom in international gas prices to get WDS to perform better -- the catalyst for that could be as simple as a cold winter in Europe or an improvement in sentiment towards China's economic growth.

Robert

4:40

What ETF or closed end fund would you recommend for mid stream/MLP exposure if you do not want K1's or to hold individual securities?

Roger Conrad

4:40

Hi Robert. First, I would point out there are just as many midstream C-Corps at this point as MLPs. In fact, most of the big stocks that you would find heavily weighted in an ETF are actually C-Corps--Enbridge, Kinder Morgan, ONEOK, TC Energy, Williams Companies to name a few. Why pay an ETF fee and be at the mercy of an issuer folding at a low price when you can own these same stocks yourself--and control the price you pay for them?

In the midstream closed end fund arena, I do like Kayne Anderson Energy Infrastructure Fund (NYSE: KYN). The fund has a high yield (just increased) and trades at a discount to NAV of around -11%, which should close over time. And the portfolio is high quality. It does have expenses, however. And it uses leverage to achieve its yield as do almost all CEFs--which means NAV and the dividend is vulnerable to big market declines.

Hans

4:46

Roger, BHP, the last 5 days has increased $4 what is behind this increase. Thanks

Roger Conrad

4:46

As I indicated in the most recent CUI Plus update, I think BHP is doing a lot of things right--including apparently settling litigation in Brazil over a 2015 mine dam disaster that will set the stage for more profitable investment in the country. Plans to boost copper and potash output meaningfully by the end of the decade are still moving forward successfully. The company has been successful with asset sales to help fund growth where it wants to expand. And the dividend declared for shareholders of record Sept 13 is generous and solid.

That said, I think the recent upside is macro related--mainly moves in China (BHP's biggest market) to revive moribund economic growth, and as a consequence global demand for key products like metallurgical coal, copper and iron ore. Commodities outside energy have been weak. We think we're in early stages of recovery. And I think BHP ADRs will trade north of $100 in the not too distant future.

Guest

4:56

Roger:I know we have CVS as a holding in our CUI Plus portfolio. Can you comment on WBA as a prospective holding? I purchased some based on a recommendation of another newsletter/competitor of yours and they do not do monthly followups as you do on their stocks listed.

Roger Conrad

4:56

Thanks for that question. Both CVS and Walgreens currently face several meaningful headwinds--rising costs of servicing Medicare coupled with tighter regulation, a drop off in vaccinations spurring foot traffic post covid, the cost of litigation (WBA paid $106.8 mil to settle alleged billing fraud charges, CVS is being sued by the FTC over insulin pricing), still high borrowing costs and forays into health care services that have yet to provide a big uplift to profits.

The difference is CVS has largely stuck to its plans, despite cutting guidance this year, while WBA has been forced to retrench. And CVS still has an investment grade credit rating, while WBA's is junk.

As you know from reading CUI Plus, I currently have CVS basically on probation, pending what the company reports in Q3 results due Nov 6. I would say WBA is doubly so for its results Oct 15. Mainly, I want to see signs of stabilization. If there are enough, CVS will be a buy again and there may be speculative merit in WBA.

Roger Conrad

4:56

if not, we're going to want to stand clear of both until there are signs.

Guest

5:12

Roger: Please provide us with your thoughts on HE as a long term hold. Thanks. Barry

Roger Conrad

5:12

Hi Barry. As I noted answering an earlier question, the equity offering announced by Hawaiian Electric this week hit the stock hard. But by raising $500 to $575 mil, the company is raising a sum that will cover more than one of the four equal payments of the $1.91 bil needed to pay off the Maui wildfire claims--or 30% of total needed funds assuming the underwriters exercise their option for around 8 mil additional shares. Combined with the potential sale of the American Savings Bank to Central Pacific Financial for $1 bil plus, that gets the company more than 82% of the way there to fund the claims without resorting to filing for bankruptcy.

I think this is the kind of news you want to hear if you're patiently betting on a comeback for Hawaiian Electric. The cost here is considerable. But what you have is the state of Hawaii has gone all in on keeping the utility whole--as the key instrument of its plans for an energy transition from oil dependence to generate electricity.

Roger Conrad

5:12

And that's what's needed for HE to join the ranks of regulated utilities over the last 100 years that have recovered from every disaster encountered.

Hans

5:15

Roger, I will not be able to attend the Money show in Orlando, but will you be at the Sarasota show in December. Thanks

Roger Conrad

5:15

Sorry Hans. We have no plans to at this time. We have been participating in a number of virtual MoneyShows over the past year and plan to continue doing so. Also, we would be happy to send you a copy of our slides following the presentations. Please let Sherry know if you're interested in that by calling 877-302-0749 M-F, 9-5 ET, or writing service@capitalisttimes.com.

Guest

5:22

Roger: Please review my thinking and tell me if I am crazy or reasoning appropriately. How much "bad" risk can there be buying NEP say at $26 per share? If we receive 2 years of dividends at 3.62/yr., then we will have received $7.24 in income by the end of 2026. If NEP cannot get new financing and it implodes and drops to $19 per share or worse, will we not have broken even or close to it? (disregarding income taxes for the time being on our $7.24 of distribution). What am I missing here??????? I am willing to take that risk. I bought PCG based on your sage analysis from 2020-2022, and my perception was that stock was more risky. Your honest opinion would be appreciated. Thanks. Barry

Roger Conrad

5:22

I agree with your reasoning here on NextEra Energy Partners. I think yielding 13.5% as of today's close, it's easily pricing in a dividend cut of 50% if not more--Clearway Energy (NYSE: CWEN), a similar construct--yields just 5.6% and is growing dividends at roughly the same annualized rate. It's hard to see a lot of downside for NEP even with a cut. And keep in mind that the dividend is going to be increased through 2026 at a 6% annualized rate--so as long as that holds you're going to be receiving considerably more than $7.24 in income.

I think it's possible the private capital firms that own these CEPFs are trying to play a little hardball with NextEra Energy--in not already coming to some agreement that removes the CEPFs as an issue. But their window is likely closing as interest rates drop. I also think concerns about IRA subsidies going away may be depressing NEP--and I would look for these to be dispelled either by election results or later by NEE backing up management's words that its growth depends

Roger Conrad

5:23

on corporate demand and not subsidy/tax cuts. But either way, I think time is now on the NextEras side to get this worked out and to restore NEP as a funding vehicle. And again, with a 50% dividend cut plus already baked into the price, it's hard to see a lot of risk betting on that now.

Bonnie Beth

5:23

Hi Roger,

Roger Conrad

5:23

Hi Bonnie Beth.

Michael G.

5:29

Good Afternoon Sherry,

I've never known Roger to cover CNX and CEIX. Why is that?

Roger Conrad

5:29

Hi Michael. We have covered CNX Resources in the past, though the lack of yield since 2016 has kept our interest cool--when there are so many other options that do pay dividends. The stock has had a nice gain this year and the company itself appears to have pulled itself up by conservative operating and financial management. But again at this price, we like other producers better. And the same goes for Consol Energy, the former coal mining affiliate. Alliance Resource Partners, for example, has a yield more than 10 percentage points higher.

Thank you for bringing those names back to our attention. Always good to review alternatives.

Bonnie Beth

5:36

Hi Roger, Thank you so much for all your help, guidance and investing knowledge and wisdom over the years. We have done very well with utilities and REITS. My question is about your First Rate REITS in the REIT sheet and your Universe of REITS, which I see published in the current issue. I have only purchased the REITS listed in your First Rate REITS. Are we supposed to consider any of the REITS in the overall Universe as potential investments? How should a subscriber view the REIT Universe for potential investments? At what point and indicators do you use to add a particular REIT in the universe to your First Rate REIT sheet? Again, I have never invested in the Universe, only REITS you list in your First Class REITS. Thank you so much! Warm regards, Bonnie

Roger Conrad

5:36

Thank you for those kind words Bonnie. The list I call "First Rate REITs" are the best places in the sector to have your money in my view. The list is drawn from a wide range of property sectors and types. And the companies i feature offer the best combination of safety, income and long-term growth in their sectors, in my view. I also feature two "fresh money buys" in every update, one more conservative and the other more aggressive.

I offer the broader universe for two main reasons. First, I'm sharing research with you that I'm doing on a much larger list of REITs to determine if there are other REITs I want to feature as well as to warn investors to steer clear of. And second, I know people own other REITs and I want to share my opinion on them as well as those I feature. But again, the REITs I want to recommend most to you are those on the First Rate REIT list.

Roger Conrad

5:36

Same rationale we follow in Conrad's Utility Investor and Energy and Income Advisor by the way.

5:43

HI Roger,With economic growth likely to slow significantly for at least the next few quarters, what are your thoughts on PLD?

Roger Conrad

5:43

Hi RW. I think Prologis has been very proactive so far as guidance is concerned, starting with the view management laid out at the start of 2024 that industry conditions were likely to soften this year from what had been torrid activity. They did cut guidance slightly in spring following Q1 results. But they mostly restored the initial forecast in July after Q2 numbers. And it looks like they should affirm it again after Q3 results in about a month.

It's also worth pointing out that Prologis still expects to grow this year, despite weaker conditions. That's in large part because of the cost and scale efficiencies it's still realizing from the Duke Realty merger. And we should see similar gains resulting from the successful takeover of a Mexican real estate company that's ideally position to capitalize on a boom in near shoring.

My only caution on Prologis at this time is that it's currently trading above my highest recommended entry point of 125. So I'd wait on any new purchases. But it's a core REIT.

Fred

5:47

BHP and RIO seems to be moving in lockstep with RIO sporting the higher dividend. Which is the better option going forward? P.S You provide a valuable service and do a good job at it... Grazie

Roger Conrad

5:47

Hi Fred. I continue to prefer BHP as the more focused company both resource wise and geographically. But I think both are more or less trading around what should be a multi-year bottom that's due to weakness in commodity prices outside of energy. Regarding the dividend, there's really not a meaningful difference. And keep in mind that both pay at a variable rate--so while I think dividends will rise a lot in coming years, there will be ups and downs at both companies.

Arthur

5:51

VST (not sure if my earlier sent). Sold some of my VST, but want to stay in the space, any companies you like that are poised to move do to increasing but have not yet taken off like VST

Roger Conrad

5:51

I did answer your query a bit earlier in the chat. Unfortunately, Vistra and Constellation Energy are pretty much unicorns in terms of companies that own large amounts of nuclear generation that sells into unregulated wholesale markets. Dominion Energy does own the Millstone facility in Connecticut that's suddenly become a lot more valuable. And I think it will likely monetize that investment eventually at a great profit. NextEra Energy also owns Seabrook and other nuclear plants and may do the same. I like Dominion up to 65 and NextEra Energy below 80.

And again, for more on nuclear--I wrote extensively on the subject in the August Conrad's Utility Investor. And anyone interested in nuclear should give Sherry a call at 877-302-0749, M-F, 9-5 ET for more information on CUI.

Randy D

5:57

Good afternoon to all. My brokerage company sent me alerts that these three stocks recently hit a 52-week high: KMI , PBA , and MPLX. Do you think it might be time to take some profits on these three, or just keep riding them (hopefully) higher? Thanks

Roger Conrad

5:57

Hi Randy. I don't think any of these stocks have really run that far above highest recommended entry points to merit taking a profit. Kinder's is 22, Pembina's 38 and MPLX is a buy up to 40. I continue to believe we're early in this energy super cycle and that these midstream stocks are ultimately headed a lot higher the next few years. If these stocks should rise another 15-20% , we may revisit that. But at this point, the advice is basically hold until prices rise enough or dip again below highest recommended entry points.

sal

6:05

Afternoon Gentlemen There's been a lot of talk about Buffet unloading shares of quality name stocks and buying treasuries . Does he know something we don't . Higher taxes ,market recession Your thoughts always appreciated .

Roger Conrad

6:05

HI Sal. As a Berkshire owner the past few decades, i like the Buffett philosophy. And as you've no doubt noted this year, I have also recommended taking profits on several stocks across our advisories where I've thought prices have risen too far, too fast. We also continue to recommend holding cash in our model portfolios--CUI Plus/CT Income has been over 20% all year.

That said, our focus is and has always been on stocks of companies that we believe are able to stay on track with investment, growth and dividends despite economic cycles, adverse regulatory events etc. And the stocks we recommend are also greatly under-represented in the broad market indexes that increasingly dominate stock ownership--with passive money invested exceeding actively managed money for the first time ever. They would probably take on water if the Big 6 Tech stocks(30%) cracked. But they're still cheap. So while we're not complacent in this environment, we are comfortable with what we're recommending and positioning.

6:07

Any suggestions for what software to use for investment holdings so can track better.

Roger Conrad

6:07

Hi Ed. We currently use Bloomberg at Capitalist Times. It's a great product but also prohibitively expensive for individuals in my view. We are currently researching other systems and I'll be happy to share what we find with you.

Jim D

6:14

Roger, Elliott - thanks for these chats. Very helpful. I sold T still hold VZ and am contemplating buying TMUS as a longer term play on 5G. Is the 5G promise relatively "realistic" in the shorter Long-term or is this long, long term reward for an investment today? I envision 5G replacing fiber optic cable for "the last mile". Am I too much into science & telecom fiction?

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