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Roger Conrad

3:15

That's also the point I make every year choosing picks and pans from the major essential services sectors--despite the similarities of the companies in the Utility Report Card, the highest performer beats the lowest by at least 100 percentage points every year.

3:16

So the most important question isn't really whether the DJUA will go up or down in a given year. It's can we place our bets on the relative outperformers.

3:19

I see reasons why the DJUA could go higher and I've written about them frequently--the fact that the power business in the US is the healthiest in decades, investors' zest for yield and safety, the fact that utilities are now tapped into growth from real transforming themes like decarbonization of energy, 5-G communications possibilities and the need to for infrastructure to deliver safer and cleaner water despite environmental challenges. We saw all of these strengths in action once again in Q3 results--and they're offset at most companies by sky-high valuations.

3:22

The indicators we follow as a company suggest this bull market has more to run. But the high valuations make betting on utilities as a sector--say through an ETF--unexciting at best at this time. The DJUA reached a new all-time high Sept 30 and has stalled since. One of its members AES Corp, however, has returned 14% since the high.

Kevin C

3:23

Hi Roger, I have been a subscriber for many years and appreciate the depth of research and insights into the utility industry and all it's pieces.

Roger Conrad

3:23

Thank you Kevin. As you can tell, I'm pretty excited about what's going on now.

Kevin C

3:26

With the transition to renewables, are MLPs viable long term investments?

Roger Conrad

3:26

That's a very good question. At EEI, Consolidated Edison CEO John McAvoy basically said that his company was pulling back from what had been a pretty aggressive series of investment in natural gas infrastructure, including 50% of Crestwood's Stagecoach system and a big stake in the Mountain Valley Pipeline. He even went so far as to infer that it was no longer the time to be building anything to do with natural gas. That's what apparently has been decided in the UK, where natural gas for heat will be phased out by the middle of the next decade.

Roger Conrad

3:31

On the other hand, the sentiment that natural gas has outlived its usefulness was hardly universal. And there are some pretty frightening examples for policymakers about what happens when gas is skipped as a transition fuel--starting with the defeat of the Liberal Party in Ontario, and the current Conservative Party's reliance on taxpayer-financed subsidy to hold electricity bills down that are due to switching directly from coal to higher priced renewable energy. A regulator from New York state--where the governor is effectively blocking new natural gas pipelines even while forcing utilities to hook up new customers--pronounced the problem as educating people that switching from coal to gas is very helpful for the environment and eases adoption of wind and solar as their prices come down.

3:33

Bottom line is I think the move to gas in North America still has a ways to run--that's based on what companies are planning and saying now. That doesn't mean every midstream company is going to make it. And in fact, I think we have far too many right now. But the stronger fare will be needed and will generate reliable income for their shareholders.

3:38

Consolidated Water. What is you long term evaluation. Recently sold for a profit

Roger Conrad

3:38

They announced Q3 just after we put the November issue to bed so I'll have a full roundup of results in the December issue. But I thought the improvement in margins we saw and progress at the Rosarito, Mexico desalination project far outweighed the lower revenue from bulk water sales due to lower rates during the quarter. And guidance remained on track, with bulk water operations expected to stabilize going forward. The company also has a new opportunity in water projects in the US after the PERC Water acquisition. The only thing I'm a cautious on now is price, which as I mentioned answering a question earlier in the chat is well above the buy target of 14. Also I'm not expecting a dividend increase at least so long as the Rosarito project is in progress.

Roger Conrad

3:39

Bottom line is I've tracked Consolidated for a long time. I believe the company is solid and on track for a big leap ahead when it gets the Mexico project up and running. But it's a little rich now to recommend, even though it has come down a bit from highs of earlier this month.

Tom

3:43

Thanks again Roger for CUI. Your well-written and thoughtful guidance is indispensable for this retired SWAN investor. I am curious about your current thoughts about EPD and MMP. I own both, consider them to be strong SWAN investments, but they are unloved for some reason by the market. They are also conspicuous by their absence in your CUI portfolios, even though they are significantly undervalued, going by your buy-under points.

Roger Conrad

3:43

Both Enterprise and Magellan are members of the Energy and Income Advisor Actively Managed Portfolio and I do agree with you they're strong values now. They are among the very small group of pipeline companies I still track in the Utility Report Card. EIA is where we really track them, though as you can see from the URC comments there was a lot to like in the Q3 results of both companies.

The main reason you don't see them in the model CUI Portfolios is because we do strive to differentiate our services. But we do like both of those names a lot.

Herm

3:47

Shares of T have declined in the last few days on an analyst downgrade. I thought negative news was already in the stock. The shares are doing better today so is there any merit for the decline?

Roger Conrad

3:47

AT&T is now back below my buy target of 38, and therefore presents those who didn't get in earlier with another opportunity to do so. This company is covered by 33 analysts tracked by Bloomberg, so upgrades and downgrades come with the territory. I do see that the analyst you're referring to is more or less a perma bear on AT&T. That's neither here nor there but I honestly can't remember a time when he ever recommended AT&T. In fact, he was rating it a sell earlier this year when the shares were under 30.

Roger Conrad

3:51

Anyway, the key issues for AT&T are still cutting debt in line with guidance, rolling out 5-G service and marrying its network with the content it acquired with Time Warner Inc--as Comcast Corp has done so successfully. What we saw in Q3 was generally success on all fronts, including wireless customer growth that was a nice positive surprise. I think there are still bridges to cross, so I'm not raising my buy target over 38. But at 10.4X earnings, the valuation is hardly stretched and expectations are still very low. That plus a steady dividend likely to get a one cents per quarter boost next month are good reasons to expect more upside going forward.

Tom

3:57

Roger, would you please explain in layman's terms what will happen when BEP makes its special stock distribution? I read the press release, but I still don't know for sure how it will affect me as a BEP investor, though I'm guessing it is the reason BEP has surged in price of late.

Roger Conrad

3:57

First off, I think Brookfield Renewable Partners has returned 72% the past 12 months for a lot of reasons, the main ones being solid asset and underlying cash flow growth and what's now a very strong global presence in contracted renewable energy generation. That's pushed the price a good bit higher than I want to recommend buying it. But as I pointed out in the Alert last week, Q3 results certainly do point to more good news ahead.

Roger Conrad

3:57

As I understand it, the "stock split" basically creates a new class of shares--in this case in corporate form--which current owners of BEP will own 100% of initially. So doing, it is not creating a taxable event for BEP shareholders, but is potentially opening itself up to investment from entities that can't own partnerships.

3:59

I don't think this necessarily affects one way or the other as shareholders per se. It should help Brookfield raise more money and possibly could be used to buy whole companies. Given management's track record, that could help speed up growth. But at this point, it looks like all that will change for us is a new share will show up in our accounts.

I will of course update readers if anything different from that comes to my attention.

Lawman

4:13

Why was your target raised on AES?

Roger Conrad

4:13

The short answer is I was happy with answers to questions I had for the people I met with at EEI. I've highlighted some of these thoughts along with more general ones in the post EEI conference report, which is now posted on the CUI website under the "Reports" tab as "On the Ground at EEI 2019."

Lawman

4:19

AGLXY has not experienced the run up of other utes. What is the reason for that? Is it worth buying more at this level?

Roger Conrad

4:19

There are two reasons why AGL has lagged other utilities. First is the fact that it's an Australian utility and is therefore priced in and pays dividends in Australian dollars. The AUD currently trades for less than 68 US cents, the lowest level since early 2009 because of concerns about the health of the Chinese economy--the most important market for the country's natural resources. And the weakness has a direct dollar-for-dollar impact on returns to US investors in AGL. I think it's likely to AUD will move higher from these very depressed levels over the next 12 months, which will have the opposite impact and boost AGL.

Roger Conrad

4:23

The other reason AGL is depressed is difficult relations with Australian national regulators--who have attempted to cap electricity prices and have pushed back against the company's strategy of replacing coal fired power plants with natural gas, renewables and energy storage technology--as well as a push to behind the meter solutions such as solar. The surprise re-election of the National/Liberal Party coalition government last spring means AGL will have to continue to deal with the same people and government policies. But as I noted in the November CUI Feature article, there are already signs management is improving the relationship. I like the very low valuation here and continue to rate AGL a buy.

Lawman

4:27

What are the prospects for BCE? Do you prefer this to the America telecoms? Is BCE worth a buy at this level?

Roger Conrad

4:27

I wouldn't say I prefer BCE To US telecoms, but I would say the stock presents an excellent value proposition with a mid-single digit yield and mid-single digit annual dividend growth. As noted in my URC comments, Q3 results were solid and continue to demonstrate the advantages of a best in class network. The cut in wholesale broadband prices charged to third party providers ordered by Canadian regulators in August is a potential challenge. But it's arguably helped BCE's competitive position by hurting rivals more. Our buy target remains 50.

Lawman

4:31

BEP is above your recommended buy level. Are there any likely catalysts that can lift this stock higher? Should I sell now, and buy back later if the price comes down?

Roger Conrad

4:31

BEP hasn't yet hit the point where I've said it makes sense to take at least a partial profit. But I don't think it's ever really a bad idea to take some money off the table in a stock that's really run and when an investor is particularly overloaded. As for what could push it higher, we've seen momentum for favored sectors push stocks to multiples that seemed impossible a few years ago--and few areas of essential services have generated the kind of enthusiasm renewable energy has. As my earlier comments in this chat indicate--as well as pretty much everything I've ever said about BEP--this is a well run outfit with many advantages. The challenge is managing what's fundamentally a long term position.

Roger Conrad

4:33

And that means recognizing that momentum can run a long way in one direction before reversing. That said, there's nothing wrong with just holding BEP on this upturn and planning to stick if/when it comes back down a bit----provided one recognizes that it may indeed retreat from this price.

Lawman

4:37

What is your outlook on the future of lithium prices given the proliferation of electric cars?

Roger Conrad

4:37

It's kind of ironic that lithium has lagged other commodities this year, given current investor expectations for the growth of electric vehicles. I think that's a pretty good indication that (1) while EV adoption is growing and is likely to accelerate it may not catch up to the hype, and therefore really help the "beneficiaries" like lithium prices, (2) China is by far the most important market for anything to do with EVs and what happens there will set the price.

Roger Conrad

4:39

The other point on lithium as well as any other specific element I would make is that the history of natural resources is that rising demand and price inevitably leads to (1) development of alternatives that are cheaper and do the same job, (2) conservation, i.e. doing more with less and therefore (3) lower demand and lower prices.

4:40

That's why I prefer investing primarily in adopters of new technologies, rather than commodities that can be displaced or manufacturers that are always in a race to develop a better product at a lower price--a race to the bottom that benefits adopters, whether we're talking about EVs, solar panels or anything else.

Lawman

4:43

NTTYY: Buy, sell, or hold, and why?

Roger Conrad

4:43

Buy below my highest recommended entry point of 52 for the reasons I highlighted answering that earlier question on NTT regarding the planned 2-1 stock split. I note we're not too far from hitting that 52 level and the stock is still under 12X expected next 12 months earnings.

Lawman

4:47

Any views on OSG?

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