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Roger Conrad

3:03

In the February issue of CUI feature article, I presented Dow Jones Utility Average performance data comparing returns in January to full year returns. The good news from that is you have to go back to 1987 to find a year when utilities had a strong January but an overall down year. And it's also true that real bear markets don't occur without a recession--which the economy still appears to be avoiding based on the indicators we follow. That plus the absolute lack of inflation pressure and a very accommodative Fed in an election year are potential fuel for more stock market gains. And the DJUA has hit a new high as I answer you. On the other hand, nothing grows to the sky and those who fail to take at least some profits when things are going up often live to see them evaporate.

Roger Conrad

3:05

That's why I'm sticking to the same 3-point investment strategy presented and highlighted in the Portfolio article of every CUI issue: Sell the weaklings, build cash/hedges and build a watchlist of good stocks to buy. I love the profits but I'm keeping a healthy dose of caution with valuations this high. I've found in 35 years in this business that upward momentum has a way of shifting when you least expect it.

Maureen Brunner

3:11

What is your opinion about how the outcome of the 2020 election will affect energy stocks?

Roger Conrad

3:11

I don't see how sentiment could get much worse for energy stocks, no matter who wins in November--which at this point is wide open from all indications. I do think that oil and gas will continue to compete with renewable energy over the long term. But even under the most aggressive forecasts for wind and solar adoption, LNG usage rises substantially by 2050. And the theory that a Democrat in the White House would be able to outright ban hydraulic fracturing (even if they wanted to) is fanciful, though I would expect to see more environmental regulation.

Roger Conrad

3:13

What's important for energy stocks now is to prove resilience in what's a giant stress test of their business right now. Some will make it and go on to a big recovery. Others won't and will implode. Separating the good from the bad and ugly is what we do at Energy and Income Advisor. Visit www.energyandincomeadvisor.com to see a sample issue.

Christopher

3:18

Hello
My question is on AGL Energy Ltd (AGLXY).
After listening to the hour and 15 minute first half conference call
This company has many different components making up the company as whole :
   1. electricity is produced Coal, Nature Gas, Renewable (Solar & Wind) and believe also Hydro power
   2. plus they supply Natural Gas to End user
   3. then there is LNG storage, and import, and the company has Natural Gas fields producing Natural Gas.
Dividend policy is 75% of Net Income and the company is also buying back shares helping the Dividend payout per share a plus

However there Coal Fired power plant is 50 years old, and I believe the company wants to switch to Natural Gas and I think at a new site, cleaning up the old site.

Ok I could go on, but at under $14/share and the company just declared at 47 per share cent dividend
Any update on the company

Roger Conrad

3:18

I answered a question on AGL earlier in the chat. Thanks for providing more detail on the company for everyone else on the chat. I would also invite you to check out what I've written in past issues, which you can do by typing AGL into the box by the magnifying glass on the website.

Bottom line is I see several upside catalysts for this stock the next 12 to 18 months despite the headwinds I described earlier. One is the Australian dollar at a multi-year low and very much leveraged to a Chinese recovery later this year. Two is a very low share price, in fact below my Dream Buy price as a reader pointed out earlier. And three is simply long-term growth as the company transitions to wind and solar as well as energy storage, where they're already a major player. If you're looking for something to buy low in this market, AGL is pretty much it.

David F.

3:24

Roger, can you please discuss how you are thinking about the market impact of the coronavirus on your recommended stocks. Thanks.

Roger Conrad

3:24

If you're talking about the stocks we cover in CUI, anything that threatens growth particularly overseas has been fueling buying momentum of US utility stocks. That started with the US/China trade tensions and has picked up steam lately with the worries about the coronavirus--people love to come back to 100% US revenues, particularly when companies are recession resistant and pay dividends, which utilities do.

I do continue to recommend two Chinese companies--China Mobile (NYSE: CHL) and CLP Holdings (OTC: CLPHY). Both provide essential services, so they're insulated from the ups and downs of mainland China and Hong Kong, respectively. But both would definitely benefit from good news in China. Incidentally, headlines, newsletter promos and scary numbers aside, there is some pretty solid evidence the coronavirus is coming under control. That's one factor pushing up the rest of the stock market over the past week.

Roger Conrad

3:28

Bottom line is more often than not, by the time the media catches hold of a problem, it's well on the way to getting solved. I have deepest sympathies for the victims and there's likely to be more bad news about the coronavirus before winter ends. But as investors it's important not to get too caught up in one factor when so many affect stock prices.

Jimmy C.

3:33

Roger: Can you elaborate on your comment in the current CUI regarding Southern Company. The company is funding its share of the cost of the two reactors in part through billing surcharges on its customers throughout the construction period. What portion of its cost will remain when the units are on line? Management quotes the cost of
electricity from the plant to be about .01. I am wondering if there will be enough initial (construction) cost left over when generation from the plant begins to make it NOT the low cost plant to dispatch at any given time.

Thanks.

Roger Conrad

3:33

Good question. The economics of nuclear power--similar to wind and solar--is that the vast majority of costs are upfront in the construction stage. Once a plant is built and operating, there are operating and maintenance costs including for nuclear fuel. But these are negligible compared to the cost of operating a natural gas or coal plant, which much be continually refueled with often volatile-priced fossil fuels.

Also, once the Vogtle reactors come on stream, they will run all the time, with the exception of refueling and maintenance outages. As first mover projects in the US, I think it's reasonable to expect there will be some hick ups in the startup phase. But these may be less than expected, given Southern's relationship with the company in China that started up several AP-1000 reactors last year. And once the plan is up and running, it will be the go-to, low cost resource for the company.

Roger Conrad

3:36

The economics do look different when you include the construction costs, which did exceed initial estimates. But here too, reality looks a lot better, as low interest rates held financing costs actually well below initial estimates. And the fact that Vogtle was the only nuclear project in the US also held down material and labor costs. And because the cost went into rates as incurred, Southern maintained a premium equity valuation and low cost of debt capital, which also held down costs.

3:37

I'm not 100% certain if anyone will want to follow Southern's lead and build a nuclear plant in this country--i think Dominion and Duke are good candidates to do so. But I do think Vogtle has a really good chance to be a profit center for Southern over the long term. That's one reason we're still holding onto the stock, though it is trading well above our max recommended entry point.

John C.

3:43

Won't be able to make it but have a couple questions i'd like addressed if possible

Can you provide some guidance for those of us who are in retirement and are looking for good fixed income opportunities in the utility space? Particular individual bonds? Bond funds?

How about preferreds?

thanks

Roger Conrad

3:43

In the January 14 "Utility Roundup" "Hunting Bond Bargains in a Seller's Market", I again highlighted my top bond recommendations from our CUI coverage universe of essential services companies. Some are trading above max recommended entry points. But that is a good place to start. It's archived on the CUI website under "Utility Roundup" in case you missed it.

I can appreciate investors looking for fixed income as well as a haven against a potential market pullback. Unfortunately, the big picture here is bonds and preferreds that aren't also convertible to stock really don't offer much yield or protection with corporate borrowing costs at multi-generation lows. You're really better off for the most part buying stocks and managing the risks.

Roger Conrad

3:45

I have recommended the Vanguard Intermediate Term Municipal Bond Fund (VWITX) as a parking place for funds with low risk, either to credit events or higher interest rates. It yields 2.5% and pays monthly, which is attractive even if you can't use the income tax advantage munis afford. It's extremely diversified, has basically no fees (17 basis points a year) and has a great track record as well.

There will be a time when bonds again become more attractive as an asset class. And in the meantime, I'll continue to present my favorites to you in our Bond Portfolio.

James S.

3:55

Roger, I have a poorly balanced portfolio (too few stocks, and too sector specific) oriented at reliable dividend stocks - all but one coming from your highest recommendations. (ET, PAA, WMB, EPD, MPLX, NRZ).
I am waiting for a sector recovery to sell some and rebalance with more stocks, with less pipeline orientation. My goal is a 6% return, and I dont see any highly recommended options that get close to that outside MLP and pipelines. (Possibly VZ and MO) I try to stay in your universe, since you act as watchman, and I am not qualified to do that myself.

I have two questions.
First, MPLX is not reported in CUI, yet it is highly recommended in EIA. Are you still as strong on MPLX, and what is your recommended buy level for MPLX. I need that information to judge when it is ripe to sell. Any chance you will add it to CUI?

Second, can you point me to some non-pipeline stocks which you consider to be safe bets to continue a dividend over nominal 5%, with a strong business model that predicts contin

Roger Conrad

3:55

As I noted above, the news so far from Q4 results has been good for large, diversified midstream energy companies. That's a good indication they're successfully weathering the stress test in their sector brought on by reduced producer CAPEX. We haven't heard from ET or WMB yet, but indications are they'll be as solid as EPD etc have been already.

Regarding MPLX, they also had very solid results, as we noted in Energy and Income Advisor. Operations are steady as with other diversified midstreams and management is keeping things conservative with capital policy, which should keep distribution coverage solidly at 1.4 times or better this year. I see three upside catalysts this year: The 11% plus yield, business resilience to bring back buyers and a possible spinoff/conversion to a corporation.

Roger Conrad

3:57

Shares of MPLX are well below our max recommended entry point, which would be at least 30. To be honest, I don't anticipate covering it in CUI--it's really beyond the ken of the coverage universe. You can feel free to ask me about it though. And we have no plans to sell at this point.

3:59

Regarding places to get yield outside the utility and energy sectors, I invite you to check out CUI Plus--which as I noted above is a managed and weighted portfolio drawn from around the dividend paying universe.

David F.

4:04

Roger, can you please share your thoughts on AGL Energy's results reported yesterday? I noticed that this company's generation is largely coal generated. Are you worried that these coal assets may become stranded with new environmental regulations.

Roger Conrad

4:04

As I noted above, I'm very bullish on AGL at these prices for many reasons (I think the earnings are solid for one thing) and the stock rates a buy up to 18.

As for the coal exposure, the only regulatory challenge they've faced lately has been Australian government opposition to their plans to switch off coal for renewables and naturals, specially shutting the Liddell plant in 2022-23. AGL definitely believes it's more profitable to move to gas and renewables and is still moving that way. The government wants it to keep using coal. So no I don't see stranded coal assets as a worry here, just management being able to make adjustments as it sees fit without government interference.

Roger M.

4:08

I have been a CUI subscriber for many years and have been very pleased with your advice.

I am writing to ask your thoughts on EQM, which I have held several years in my IRA. EQM has a low forward PE and appears undervalued. Thank you.

Roger Conrad

4:08

I agree EQM looks cheap. But there are two major risks that are making it so. First, its primary customer EQT Resources (NYSE: EQT) is in full retrenchment mode since the Rice brothers took control last year. That means less output going over EQM systems as well as negotiations to cut rates and therefore margins for EQM. Second, EQM has sunk a great deal of capital into the Mountain Valley Pipeline, which is hung up in the courts. If the US Supreme Court does not rule in the Atlantic Coast Pipeline's favor on crossing the Appalachian Trail, it's hard to see MVP getting built for the same reason. And that would mean a huge writeoff for EQM. Both of these factors are huge risks to the dividend of more than 20%. And as we've seen, energy stocks fall when they cut dividends, even if they've already come down a ways. We rate EQM a hold in EIA but no one should without a healthy appreciation of the risk.

Christopher

4:10

Hello
My question is on AGL Energy Ltd (AGLXY).

Roger Conrad

4:10

I hope I've addressed it sufficiently with my other answers in this chat. I should also note that in the next couple days I will be producing an Alert highlighting this week's Q4 results and the handful of advice changes in the Utility Report Card.

Rick R.

4:16

Hi Roger,
Thoughts on continuing to, or adding to at current prices, CVX, KMI, and EPD? Have owned all for many years but the entire fossil-fuel industry is in the green movement's crosshairs. Some fund managers will not own such companies and major college endowments are shedding (or planning to) all such holdings. One well known market commentator has been repeatedly negative, advising these stocks are the new tobacco pariahs.
Thanks for your help.

Roger Conrad

4:16

I think all three are very solid--as demonstrated by strong Q4 results--and will continue to raise dividends, which should eventually lead to higher share prices. I do think the ESG/divest movement is obviously having an impact on ownership of these companies. But at this point with the energy sector well under 4% of the S&P 500, damage from that front is likely done.

I would point out that tobacco stocks have been very good investments over the years for those not bothered by owning them. But equating energy companies--especially those focused on producing and transporting natural gas--with big tobacco is a classic media hype, and is not based in reality. Again, as I pointed out earlier in the chat, even the most optimistic forecasts for wind and solar adoption have the world on the order of 40% or so more natural gas in 2050 than it does now.

Roger Conrad

4:18

Energy stocks are going to respond to the factors I've described answering questions earlier in the chat. And again, if you're really interested in our analysis on oil and gas, please check out Energy and Income Advisor--where you'll also get the benefit of the decades of experience of my partner Elliott Gue.

4:19

Check out energyandincomeadvisor.com for a free sample issue. Or better still call Sherry Roberts Monday though Friday 9-5 pm ET at 1-877-302-0749 and sign up. We do a monthly chat for EIA, so there's also plenty of time to ask questions.

Don B.

4:20

Is wes a safe stock to own today?
Are there any warning signs to watch for with mlp?

Roger Conrad

4:20

They announce results February 27 and we'll have a full report then in Energy and Income Advisor--I also look for them to provide more information on the potential plans of primary owner Occidental Petroleum to pare down its ownership interest to cut debt.

RON

4:24

Could you estimate the results for both income & Conservative portfolios. Is the aggressive portfolio outperforming significantly?

Roger Conrad

4:24

I provided numbers for calendar year 2019 in the January issue. I have not done a similar analysis for the first six weeks or so of this year, but my feeling is the Conservative Holdings that have outperformed--as investors continue to pour into NEE, WEC, CMS etc as safe havens, as well as some of the renewable energy stocks. That's what's been showing up in the "Trading Above Target" list in the Portfolio section--though there are also a number of Aggressive Holdings that have moved quite a bit higher this year--notably TerraForm Power which is up 32.2% as of today not including dividends.

Roger Conrad

4:25

I will look to update the numbers at the end of the quarter--but in the meantime, I'm taking the cue from individual stocks' performance and prices for issuing buy/hold/sell advice.

Arthur

4:27

China Mobile - What effect will the coronavirus have on this stock?

Roger Conrad

4:27

As I noted above, providers of essential services are actually fairly well insulated from economic swings. And in this case, you could make the argument that the general lock down in China to combat the coronavirus spread is a big plus for communications companies--especially as the country rolls out 5-G. In any case, this is a cheap stock that looks set for a strong earnings year.

BKNC

4:30

I subscribe to CUI Plus as well. (good advice) I do not know if this is the appropriate forum but I try to diversify across sectors. I am close to retirement so do not invest in risky stocks as much as I used to. I would appreciate your opinion on what percentage of assets should go into the sectors we cover, - basically, utilities, communications and energy. CU+ is wider but just wanted to see what you felt about sector weight percentages.

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