JotCast | Conrad's Utility Investor Online Chat | 11/21/2019

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Jon B

6:46

Hi. Thanks for discussion. Any thoughts on UGI post APU acquisition and current valuation vs. growth prospects?

Roger Conrad

6:46

Obviously, UGI's share price has gone in the wrong direction since the Amerigas merger closed. FYQ4 results came out after the November issue of CUI went to post, so the earnings update will be in the December issue. For a company that's heavy on fuels distribution in the Northern Hemisphere, summer quarter results really aren't that significant to full year numbers--so I was a little surprise investors reacted to what was really a nothing earnings "miss"--loss of 9 cents versus expectations of 4 cents. I

Roger Conrad

6:46

f anything, one might have imputed a higher loss, since Amerigas the propane distributor was consolidated. Also, investors reacted negatively to the forecast of $2.60 to $2.90 for FY2020 (end Sept 2020)--which would still build in a sizable dividend increase.In any case, the history of UGI is earnings forecasts are meaningless until we get through Q! (end Dec 31) and Q2 (end March 31)--which are the quarters when the money is made for this weather sensitive business. I think the current price for UGI is attractive and continue to rate it a buy up to 52 in Utility Report Card.

Paul

6:50

Would you please describe what CUI+plus actually is/does?

Roger Conrad

6:50

Thanks for your question Paul. It's a portfolio of high dividend paying stocks that are outside the CUI essential services coverage universe. I send out an update roughly every two weeks that discusses general income/market themes and portfolio strategy, as well as updates for all of the holdings. The key feature is the table of the model portfolio itself, which highlights recommended position sizes as well as recommended prices and performance results.

If you're interested in checking it out, please call my good friend and our customer service director Sherry Roberts at 877-302-0749, Monday through Friday, 9-5 pm ET.

Jimmy

6:55

With considerable losses in SDP, does it seem worthwhile to double down for the inevitable change in utility fortunes?

Roger Conrad

6:55

I've been thinking about something along those lines, though mainly as a trade rather than a hedging strategy. With 20-20 hindsight, rather than just holding SDP to wait on a real catastrophe--for those not familiar the ProShares Short Utilities ETF gains 2 percentage points for every one point loss in the Dow Jones Total Return Utilities Index--the better strategy would have been to sell SDP on the dips. As our longer term indicators still point to a higher overall market, that may be what we do. In any case, I'll be updating my approach in the coming weeks.

Andy

6:59

Roger you’ve never commented much on BAM or BIP. Considering the infrastructure discussions are either or both current buys?

Roger Conrad

6:59

Brookfield Infrastructure Partners has certainly outperformed the Macquarie fund I largely panned earlier in the chat. But it still has an alarming number of commonalities--the most important being extreme diversification of operations but no real scale. Results were OK in Q3 but I really prefer the focus of BEP as a long-term holding. I have the same concern about BAM--which is a great and supportive parent of BEP's renewable energy business but a very complicated animal with too many moving parts for me to get comfortable.

Paul

7:03

I do my own taxes and even though under your advise they have served me, well I am tired of waiting for k-1 and am getting out of all MLPs. Would you please re-recommend two or three of you favorite non MLP low volatility income producers for a retiree.

Roger Conrad

7:03

If you're still interested in midstream, I would suggest taking a look at ONEOK Inc (NYSE: OKE), a Top 10 DRIP that I featured as the Conservative Focus stock in the November issue. It yields a little over 5% and is growing its dividend at an upper single digit rate--and its business is proving very resilient in this North American drilling slowdown. The Aggressive Focus stock is Atlantica, which though it pays a big yield is not an MLP and sends a 1099 at tax time.

Roger Conrad

7:04

I do continue to believe in the MLP model for the stronger midstream companies. That's obviously not a popular position now. But the yields and growth are still worth the tax hassles in my view.

Jeff b

7:11

ROGER WOULD YOU HAVE AN OPINION ON ngl

Roger Conrad

7:11

This is one we continue to track in Energy and Income Advisor and once again I'll remind everyone that we have a chat for that advisory on this coming Tuesday. NGL Energy Partners remains on our Endangered Dividends List and we rate it a sell. The company's FYQ2 results weren't spectacular or disastrous, and we saw some benefits from the recent asset refocus. Unfortunately, while operations are somewhat more focused than they were a couple years ago, this is still a company with a lot of diversity and little scale in any of them. There's also a heavy debt load ($2,775 bil), which is actually more than twice current market cap. Shares are down a lot since mid-September but I'm still wary.

Jon B

7:17

And one more. Did PAA's recent earnings change your impression of the company or its prospects. Supply and logistics looks to fall dramatically in 2020 after bumper 2019. But this should not have been a surprise. Why the precipitous drop? Competition (too many pipes) and slowing supply growth were cited - do you see these as significant problems?

Roger Conrad

7:17

Actually I thought Plains' earnings for Q3 were quite solid and demonstrated how management has successfully transitioned its business from less predictable Supply & Logistics to far more transparent contracted infrastructure/pipelines. I did not see a lot of exposure to reduced volumes--thanks to the focus on West Texas--and the company should get a big lift from putting the Cactus II pipeline into service out of the Permian. The 1.78X coverage ratio means they're doing a lot of self financing as well. And Moody's changing the outlook to positive for the credit rating is a good sign the company is still executing on leverage reduction.

Roger Conrad

7:19

I think what's happened to Plains shares is basically the same thing that's happened to midstream across the board. It's also significant they're a big piece of MLP ETFs. This is a name I think we can be confident in. But like other best in class midstreams, it's going to have to prove it can weather industry cycles better than it did back in 2014-16. I'm confident it's made the moves to do that over the last five years.

richard

7:22

Any answer on what's happening to OXY---previous question but I don't see any answer ??

Roger Conrad

7:22

Richard, this is a question that's going to be better answered on Tuesday, when Elliott will be joining me for the EIA live chat at 2 pm. We continue to believe there's a lot more value here than the market is giving credit for--it could be unlocked in the Icahn proxy battle but until then we like the dividend.

Michael L

7:25

Thanks for all your work over the years, Roger. General question with no clear answer. Today, the major indexes are down, but MLPs and, to some extent, utilities moved to the upside more than they have in a couple of weeks. There hasn't been any big swing in the price of WTI or nat gas, so do you have any thoughts as to the catalyst?

Roger Conrad

7:25

You're welcome and thanks for tuning in today. MLPs were certainly up a bit today, though utilities finished the day lower on a day that saw the S&P 500 slip as well. I'm not sure we can really draw any conclusions for any of this. I do strongly believe that MLPs have become quite oversold and that the best of the big are extremely cheap, but whether this bounce is the start of something bigger is not really something I can comment intelligently on.

Dan

7:28

Hi Roger, What are your current thought on ENBL price and business situation? Is it a time to buy? Thanks Dan

Roger Conrad

7:28

I think anyone who already owns Enable should just hold onto what they have. I'm rarely if ever a fan of doubling down on any one stock. But as you can gather from my answers to questions earlier in the chat, I do think they're a lot better cushioned against slowing drilling activity including in Oklahoma than they're getting credit for now. And the interests of the primary shareholders CNP and OGE are squarely aligned with those of ordinary shareholders--they want the distributions to keep flowing.

barry

7:33

Roger and Elliott:
Since your recommendation of Plains GP Holdings (NYSE: PAGP) in June 2018 do you have any revised assessment of the company? What about purchasing PAA? Do these 2 companies fall under “Conservative” or “Aggressive” Classification purchases? I believe your preference between the 2 was PAGP back in 2018.
Thanks.

Roger Conrad

7:33

Hi Barry. We hold PAGP in the Actively Managed Portfolio for Energy and Income Advisor. We don't break up holdings as conservative or aggressive there. Were I to hold either PAGP or PAA in a CUI Portfolio, though, it would be Aggressive rather than Conservative. Pipeline companies, even very high quality ones that I believe are now much more resilient than in 2014-16, still operate in a business with cyclical pressures. They're certainly less risky than a producer or even a smaller midstream. But they're not regulated utilities. Hope this helps you.

barry

7:38

Roger and Elliott:
In your UI newsletter you identify your recommended stock purchases as either “Conservative” or “Aggressive”. In your May 2019 issue of EIA you recommended AM, ENBL, ET, ENLC and MPLX with no description of their either being “Conservative” or “Aggressive”. For those of us who purchased these stocks, can you please do so now so that we may know what we type that we have?
Thanks.

Roger Conrad

7:38

Thanks Barry. As I said answering your previous question, we don't at this point characterize investments in Energy and Income Advisor as "aggressive" or "conservative," but perhaps that would be useful. When we started the "High Yield Energy List," we thought the name "high yield" plus the fact that it was focused on stocks with very high dividends being paid would imply a certain level of risk for readers that's greater than say it is for Enterprise Products Partners. Obviously, as I noted in the November 1 Alert to EIA readers "Passing Midstream's Stress Test," our timing in launching could have been a lot better and we have losses to prove it. it's also possible we'll shed one or even two of these names at the end of the year.

Roger Conrad

7:40

For now, I think the way to conceive of these stocks now is companies that are selling at very low prices with a very low bar of expectations, but that should be able to weather what's a very tough period in their sector--because of the adjustments they've made the last five years or so to get more conservative.

Again we can explore this in more detail during the EIA chat on Tuesday.

Gary

7:42

Thanks for the reassurance regarding prospects for ET.

Roger Conrad

7:42

They don't count for much unless Energy Transfer continues to perform. But at this point, I think they've made the adjustments they need to to pass this midstream stress test with flying colors--and I think Kelcy Warren's recent share purchases are a very nice vote of confidence.

Lawman

7:46

VET is doing terribly. What can pull this company out of its doldrums? Is VET a buy at this level?

Roger Conrad

7:46

We'll have a lot more time to discuss this energy producer name in the EIA chat on Tuesday, But they key for them and every other energy company is to prove their resiliency in this downturn. They had a generally solid Q3 despite some headwinds, pretty much covering dividends plus CAPEX with funds flows from operations despite lower production and much lower selling prices. And they're cutting costs and CAPEX to make sure they can do it again. They're on our Endangered Dividends List in EIA but in our view it's still a solid company that will make it through the downturn.

Lawman

7:56

Any thoughts on GLNG and INSW?

Roger Conrad

7:56

We still see a lot of headwinds in the tankers business--still too much capacity and now the threat of reduced traffic. But we are looking at some names as possible candidates for purchase next year.

Lawman

7:58

Do you recommend buying any uranium stocks at these depressed prices? What is your view on the future of uranium, and by extension, uranium prices?

Roger Conrad

7:58

We don't have any uranium stocks to recommend at this time. We have looked a Cameco in the past as the industry leader. But this has been a tough business for a while, as the world's nuclear fleet ages and is shut down--while a new generation of plants comes on line only very slowly. That's great news for adopters like Southern Company, which can look forward to lower prices for the foreseeable future for everything from commodities to labor.

Lawman

8:01

Would you continue to hold DUG and /or SCO as hedges against a further downturn in the prices of energy stocks and crude, respectively? What are your views, generally, on the future of energy stock sand crude given the proliferation of electric cars?

Roger Conrad

8:01

Questions about those ETFs are best left for the EIA chat next week when we discuss energy prices in more detail. I will say though generally that while we certainly believe transportation will continue to electrify, the pace will also allow plenty of money to be made in oil and gas. And we also don't believe this downturn in energy stocks has much to do with EVs.

Lawman

8:04

Among the beaten down MLP's, which are your favorites? Would you buy EPD and/or MMP at these levels? What about ETE and KMI?

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