JotCast | 9/27/22 Capitalist Times Live Chat

Return to

9/27/22 Capitalist Times Live Chat

powered by

Prev Page View Full Chat Next Page

Roger Conrad

5:33

No changes to the highest recommended entry points or Dream Buy prices I set in the September issue of CUI. For Atmos, the Dream Buy is 80, for Sempra 120. Highest recommended entry points are 110 for Atmos, 155 for Sempra. Both stocks have come off hard this month--shortly after selling at or near prices where we recommended taking a partial profit. I think they could go lower depending on the broad stock market. But both are very strong companies and there's no reason to expect them not to make their growth guidance even in a recession. In fact, a likely reduction in cost pressures may actually make that task easier.

D

5:36

I would like to increase my position in Valero. Based on your previous comments about downside risks to the market in general and specifically oil prices, is this a time to kind of wait and see over the next month or so, or to start to nibble. Thanks for your insight into this area.

Elliott Gue

5:36

We still like Valero. Our recommendation, and something we're going to be covering in this week's issue, is to buy many of the high quality names we recommend at what we call "Dream Buy" prices. These are levels where we believe the intermediate to longer term upside potential is outstanding. Also note that many of the stocks we recommend pay sizable dividends or distributions that are sustainable even at significantly lower commodity prices. VLO and XOM being two examples. To some extent you could also say that these dividends have some built in inflation protection as, should inflation remain well above the Fed's 2% target longer term as we expect, that's a tailwind for commodity prices and earnings. With these stocks yielding 4%, maybe even 5% -- this provides a sort of valuation anchor making this a very attractive group to buy on the sell-offs we see driven by broader market volatility.

Victor

5:38

Hi Roger, PBA is at lows not seen since early this year, do you except some support from these levels or there is more downside. Your thoughts.

Roger Conrad

5:38

Hi Victor. As I said earlier in the chat, Canadian stocks' US dollar prices are also taking a hit from the strong US dollar, which makes it more difficult to "call a bottom" in them. I can say Pembina in the past two months reported very strong Q2 results, raised its guidance for calendar year 2022, completed a major accretive merger that will greatly increase its ability to capitalize on rising Canadian LNG and NGL exports and raised its dividend for the first times since the pandemic. I think there will be more downside. But I am very comfortable holding this stock, which I think could well be twice its current level before this long-term energy cycle runs its course.

Victor

5:39

Thank you guys for hosting these chats. There is lot of value on your analysis. Elliott, OXY and XOM have been falling without a significant increase in volume, do you see these two names dropping even more from these levels?

Elliott Gue

5:39

In an accelerated sell-off, few stocks or sectors will be entirely spared. If I remember correctly, there were only 5 or 7 stocks in the S&P 500 that traded higher back in 2008. So, I would not be surprised to see these stocks pull back further in the context of a broader market sell-off to the low 3,000's. Any further dips though would likely mark attractive buying opportunities as we see energy as a leader for the next 3 to 5+ years given the extremely bullish supply backdrop for oil and gas.

Guest

5:44

Hi Roger, I am following the CUI+ portfolio and have extra money to invest in reits. What proportion of a reit should go into the CUI+ portfolio? What do you think about BTG?

Roger Conrad

5:44

As you know, we do hold a fairly large portion of cash in the CUI+ portfolio currently and just one REIT, which is pretty deep in the red (Medical Properties Trust) but still appears to be pretty solid as an underlying business to back an exceptional dividend. The question is if we want more REIT exposure, as that sector has been beaten down worse than the overall stock market this year despite some clear business momentum. We do offer the REIT Sheet as a guide to REIT investing and I would suggest checking out the recommendations there. As a general allocation question, I like to mix it up in CUI+--so given the choice between owning multiple stocks in one sector and adding one from other sector, I'll pretty much always choose diversification. But 20% is pretty much the upper limit.

The gold exposure we have in the CUI+ portfolio is Newmont Mining (NYSE: NEM), which is a somewhat larger company ($32 bil market cap) than B2GOLD at $3 bil--and is therefore more appropriate for our income focused portfolio.

Hans

5:46

Elliott Where do you see the price of OIL and Gas going in the "near" future

Elliott Gue

5:46

I have a detailed commodity update coming out as part of this week's issue. But, my targets aren't much different from back in late July -- the demand side of the equation is weak, supply is very bullish. Given rhetoric out of Saudi Arabia and the end of SPR releases next month, I see oil finding support in the $70 to $80 range. When the global economy finds its feet again, you could easily see $100+/bbl again (might not happen until H2 2023). Natgas has good support in my view down in the $4 to $5/MMBtu range (US Henry Hub). Longer term, I think gas around $5 to $6 is possible given the need to incentive more US shale spending.

Jack A.

5:59

As a long time subscriber to EIA, I have done very well with your sage advice..... And thank you for that.....However, I have to say I'm kind of disappointed recently..... With Elliot's dire predictions for the economy, I wonder why you didn't advise us to take some money off the table with our energy stocks, and to re-enter the market at a lower price...

The question is what do we do now?........ How much lower do you see energy stock prices going, and when do you see a recovery?

Thanks

Elliott Gue

5:59

Thanks for the questions. We did recommend booking some gains last spring/early summer and we advised against chasing the group higher when the S&P 500 Energy Index appeared to "break out" in August and many names were above our buy prices. However, as is usually the case, I always wish I had less exposure during sell-offs and more exposure during bull markets. Our view was, and is, that commodities like oil and gas have strong structural price support due to a lack of investment in new production capacity and the resulting structural undersupply. So we saw, and still see, far less downside risk to the group than for the market as a whole. The situation is akin to 2000-02 where energy stocks fell but not as far, or for as long, as the rest of the market. In fact, as we detail in the issue that should be out shortly, we regard this recent bout of selling as a good opportunity to start accumulating more high-quality names at very attractive prices.

Elliott Gue

5:59

We have developed an updated list of "Dream Buy" prices for our favorites. These are levels from which we see strong gains over the next several years.

Robert

5:59

As a conservative investor with a rather balanced portfolio, would you be building cash anticipating a moderate reinvestment time frame between mid November to mid February ?

Roger Conrad

5:59

The time to build cash by selling stocks is probably passed, other than when companies' underlying businesses are weakening. But banking dividends and other sources of cash to use for buying stocks later is a great idea in my view.

I'm less certain about the timing for investing the funds. My view would be to take the emotion out of the process by resolving to invest in increments--say one third of your intended investment now, another third in November and the last third by the end of the year. Dream Buy prices are another way to go--pick the stocks you want to buy and either enter buy limit orders at those levels or resolve to buy when they're reached.

Jack A.

6:01

Hi
Sorry, I forgot to add an important part to my last question. .......... When you do see a recovery in the price of oil and oil stocks, do you anticipate the stocks will reach the highs achieved in early June?
Thanks

Elliott Gue

6:01

We believe that energy stocks we like will see new highs well above what they saw in June of this year. Some of these stocks could see 100% of upside over a 12 to 24 month holding period from recent levels to price in sustained oil prices in the $80+ range.

Don

6:04

If you see the S&P going to somewhere between 2500 and 3100 what is the best hedge you are recommending.

Elliott Gue

6:04

In my Creating Wealth service I recommend several broader market hedges including inverse ETFs that track the S&P 500 (SDS) and the Nasdaq 100 (PSQ). Those are the most direct hedges, but I do recommend being careful in choosing a position size. In CW we also have a healthy slug of cash as well as a number of other recommendations. These are only part of the model portfolio.

Guest

6:08

With the Saudis/OPEC wanting oil prices to stay in the range of 70-80 dollar oil. What is your opinion of US production in keeping oil prices in this price range as well. Or will US producers continue to increase production, causing oil to go down?

Elliott Gue

6:08

US Oil production is rising only slowly because shale producers have adopted a much more disciplined capital spending strategy that prioritizes free cash flow. I don't see that changing even if oil goes back to $100/bbl. Factors like rising interest rates (rising cost of capital) and government policy toward the industry also make it less likely they'll increase CAPEX significantly. Because shale production no longer represents the supply overhang for the global oil market it once did, Saudi is now in a position to manage and target prices as it did before 2014.

Jimmy

6:08

Good afternoon, Roger: If a 10% yield is a red flag, how does a 112% dividend sound? That is the current rate for ZIM. Its down from about 80 a few months back to about $25 but still is shown with $51.50 in earnings. Is this a legit stock?

Roger Conrad

6:08

Hi Jimmy. Tanker yields are frequently crazy looking--Bloomberg shows a 108.5% last 12 months yield and 76% indicated yield for ZIM. The first number is based on a $17 per share payment in April, the second annualizes the September payment of $4.75. The broader point though is the dividend is highly variable--and as is the case with all shipping companies, it's entirely at the discretion of the real owners, who in this case are Israelis.

One place to look for guidance is the Wall Street analysts who cover the stock--they're universally rating it neutral/hold--which is a gradual erosion from almost universal buys earlier this year. That to me is something of a red flag.

By the way, I don't think 10% is necessarily a red flag for dividends in this market. It is a pretty clear signal investors are concerned about recession risk. But if you have a handle on what to look for and are vigilant on questions of business strength, there's a lot of opportunity in that group.

Rp

6:12

Hi Roger/ Elliott. My question concern is, if we continue to see markets selling off and now Utilities, energy, telecoms, are being affected. In your opinions can we start seeing dividend cuts?

Roger Conrad

6:12

Hi RP. Share prices can affect growth plans for companies that rely on acquisitions--since equity finance becomes more expensive. But there's no reflexive relationship between share prices and dividends, particularly when it comes to companies with highly predictable earnings like utilities, and the best in class energy and telecom stocks.

That said, we will likely see more dividend cuts if there is a recession as we expect. But keep in mind that we're less than two years past the pandemic, which triggered a large number of dividend cuts. Companies are much more conservatively positioned than normal, which should reduce risk to dividends as well.

In any case, we continue to monitor the health of individual companies we recommend. And when we do see weakening as businesses, we will move on.

Jimmy

6:16

With the current one year CD yield being about 4% and the 2 year treasury being at 4.3% and the Fed suggesting it will top out at about 4.6%, how would you structure a CD ladder with money not being held in reserve for stock purchases?

Roger Conrad

6:16

I don't see a lot of reason to lock up money for more than a year. Also note that a number of very high quality one-year bonds basically yield the same thing, so you do have choices.

I also think this is a time to value flexibility over even a couple extra points of yield. We're already seeing prices come off sharply for many best in class companies with essentially no dividend risk even in a recession--and in fact those dividends are likely to be increased over the next year. Bonds, CDs and other fixed income doesn't keep up with inflation.

Mark

6:18

Hello Roger and Elliott, thanks for staging this live chats . It is always great to get your perspective . My question has probably already come up but I would be interested on you thoughts as to a bottom for Oil and G and where and when (ie dream prices) you would put fresh money. I would also appreciate you thoughts on Baker Hughes and SLB both of which are significantly underwater for me. How long do you think it will take for BKR to reach the $35 price level that existed around the time you 1st recommended it, What would be your expectations for SLB over the next year, Finally what are your thoughts for price appreciation over the next year for the midstream guys, ET, EPD, KMI, and MMP. Thanks so much Mark

Elliott Gue

6:18

Thanks for the question. I did cover some of these earlier in the chat, but to summarize, I see oil seeing support in the $70 to $80 region due to a combination of the end of SPR releases and Saudi/OPEC action. Natgas could see downside to $4 to $5/MMBtu but, longer term, prices could average closer to $5 and will be well above the range that prevailed for much of the 2009-2021 period. SLB is our favorite of the services names due to its international activity flavor. The stock would likely dip further amid a broader market sell-off, but we think it'll be among the big winners of the next wave of industry CAPEX, especially given its streamlined cost structure and proprietary technology. BKS has been dissapointing, but I thinkn their LNG business will be a long-term positive and the stock is cheap mainly due to a perceived Russian "overhang" that's likely to be cleared up over the next quarter or two. Ultimately, we could easily see BKR valued at $50+ but, given broader market weakness, that might be more of a

Elliott Gue

6:18

18 to 24 month target than something to expect in the next few months.

Victor

6:18

Hi Elliott. VLO is trading under your buy price. Is this a good time to take a position on this one or wait for lower prices?

ron

6:19

Over the last several months I've raised cash from sales of several of my stocks, but I have not sold any MLP or E&P.

Roger Conrad

6:19

Hi Ron. E&Ps and MLPs prices have come down obviously. But in any case, had you sold you would not have been able to replace the income from selling your high quality MLPs and E&Ps. The producers paying variable dividends may pay less in the near term--but will still pay much more than a bond or CD. And the midstream companies will hold and very likely increase their payouts.

Elliott Gue

6:19

We regard it as a buy under $120, but have a new "Dream Buy" price to be published as part of a table in our issue due out shortly. Teh Dream Buy price for VLO is likely to be below the current price of the stock.

Guest

6:22

Hi Elliott, earlier in the chat you spoke about the S&P 500 and US equities that there will be further selloff pressure. Recently learned of the Rule of 20. the stock market is fairly valued when the sum of the average price-earnings ratio and the rate of inflation is equal to 20.

Elliott Gue

6:22

Yes, Bank of America Merrill Lynch had a report out about that. Every break market in the US since 1949 has bottomed with the sum of the P/E ratio and the rate of inflation is below 20. Right now, it's about 24, so that implied a combination of lower stock prices and/or lower inflation. By the way, since the 70's, the stock market has never bottomed before the Fed has cut rates by at least 25 basis points.

Guest

6:23

Sorry, hit the enter button and my question was sent. Elliott/Roger wondering what your thoughts on Rule of 20 might be? Your chats are much to be appreciate, Thanks :)

Alex M

6:23

Hi Roger. Thoughts on AVB as an apartment REIT? It looks like the dividend has been held steady for several years now. Could this be a red flag considering all of the favorable tailwinds in the industry right now? Thanks.

Roger Conrad

6:23

AvalonBay Communities has increased its earnings guidance three times this year. And if you check out my individual company comments in the REIT Sheet posted this week, you'll see a large number of other encouraging numbers--including a return to rent growth, improved occupancy and solid growth in net operating income in every major market--as well as only a modest increase in operating expenses. True management has been conservative with its dividend, a legacy of conservatism in my view left over from the pandemic. But the REIT appears to have a lot of business momentum now and apartments have historically been a very recession resistant real estate class.

Connecting…

Your current subscriptions

None

Register now to continue managing your subscriptions

E-mail Address	Chat Owner	Status	Remove

Enter your email address to be notified when Sherry Roberts hosts a chat