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Energy & Income Advisor Live Chat August 2019
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AvatarRoger Conrad
3:03
We would prefer T.C. Energy (TSX: TRP, NYSE: TRP) and Pembina Pipeline (TSX: PPL, NYSE: PBA) as long-term holdings in Canada-based energy midstream. Both have multiple catalysts for earnings and dividend growth that don't depend on regulatory approvals for big projects. That said, I continue to believe it's likely Enbridge will eventually win approval for and build the Line 3 expansion in Minnesota, which will provide a big lift to cash flow and I continue to see the stock a buy in the low 30s, based on a yield of nearly 7% and a mid-single digit dividend growth rate.
John A.
3:08
Add to ARESF?
AvatarRoger Conrad
3:08
It certainly looks like Artis REIT has turned the corner after streamlining its property portfolio by cutting exposure to still very weak Calgary offices (6.1% of net operating income) and deleveraging after cutting its dividend in half earlier this year. The 12.5% lift in Q2 funds from operations was most encouraging and dividend coverage is nearly 2X. I also note with interest the "special committee" which is likely considering takeover offers. I cover Artis in my REIT Sheet, which is part of Deep Dive Investing.
Howard F
3:09
If a stock does go public can a stockholder refuse to sell
AvatarRoger Conrad
3:09
Continuing on Artis, it's been a hold for a while but I'm strongly considering upgrading to buy in the upcoming quarterly addition. Risk really has diminished here.
AvatarElliott Gue
3:11
Did you mean to ask if a stock goes private can you refuse to sell? I believe that there would be a shareholder vote on such an acquisition.
lee
3:15
i own epd,trp,mmp do you see any issues concerning these stocks other than normal market variences
AvatarElliott Gue
3:15
EPD, TRP and MMP are among our favorite large-cap stable MLPs. I don't see any company-specific issues with either one though they still do see volatility due to big picture macro factors and energy sector sentiment.
John A.
3:15
If plastic packaging industry does actually add significant capacity in coming years as projected, dos PBA stand to gain?
AvatarRoger Conrad
3:15
Absolutely it does, though the recently announced acquisition of Kinder Morgan Canada and the US segment of the Cochin pipeline have a lot more to do with expanding Pembina's already very successful presence in the oil sands midstream business. The earlier merger with the former Veresen though did add considerable NGLs assets and Pembina will bring a major propane-to-polypropylene into service in mid-2023, adjacent to a fractionation facility already in operation. Another growth driver for this first rate Canadian midstream, which is a buy up to 38.
Pablo
3:23
On a previous question where AR was mentioned you said “we prefer oil leverage on the producer side” this is because of the cheap gas supply. So what is now your opinion on AR?   Thanks
AvatarElliott Gue
3:23
We don't recommend AR...In fact, can't recall when we last recommended a North American gas-levered producer in Energy & Income Advisor.  We have been pretty bearish on the gas E&Ps and gas prices for years now. We do have AM (their midstream business) on the High Yield Energy list.
jim
3:25
I always considered pipelines and infrastructure to be asset backed, and reliable income streams.   Price fluctuations, and reversal of fortunes in your highest recommended picks such as ETP, BPL, APU have keep me underwater no matter what I do.  I would like to go to cash on EPD, MPLX, BEP, ENB.   I would like your advice on the timing to best liquidate.   Once in cash, do you have a suggestion of a safe parking place with good security and returns above Macdonalds stock.
AvatarRoger Conrad
3:25
Jim, I would say this is an absolutely horrendous time to exit midstream holdings, with the exception of those that are genuinely in trouble as businesses. That's basically those on our Endangered Dividends List. In contrast, Enterprise, MPLX, Enbridge and Brookfield Renewable Energy Partners demonstrated with Q2 results and distribution increases that they're still quite healthy on the inside. BEP (up 44% this year not including dividends) and EPD (19% total return YTD) have actually been quite strong, and ENB has returned 11% YTD but are still solid value propositions.
AvatarRoger Conrad
3:26
Bottom line is it would not be our advice to go to cash on any of these stocks, or if anyone were to do so to wait for at least some rebound in their sector.
3:29
As for Amerigas, we have advised swapping for Suburban Propane Partners for some months. if anyone did not sell, it's now a part of UGI Corp as of August 22. Buckeye's acquisition by private capital fund IFM should still close in Q4. And Energy Transfer Partners is now merged into Energy Transfer LP (NYSE: ET), which we've upgraded to buy recently as it's now covering distributions by 2X.
Howard F
3:32
Which do you prefer EOM or EQT or both
AvatarRoger Conrad
3:32
We're frankly not crazy about either one at this time. The producer EQT Resources (NYSE: EQT) appears set to go into retrenchment mode with the Rice brothers now in charge. With so many cheap producer stocks available, we'd rather stay on the sidelines while they iron out the details. We've also happy to have had a sell recommendation on EQM Midstream (NYSE: EQM) for most of this year, now that EQT is looking to take an axe to its contracts with the MLP and with the Mountain Valley Pipeline still held up in court.
Ron
3:32
With current headlines mostly negative, should we be holding off putting new money to work? What is your current reading of current economic conditions.
AvatarElliott Gue
3:32
In Energy & Income Advisor "sister" publication Deep Dive Investing, we publish a 10-Point Bear Market Checklist to assess current economic conditions. In short, the read there is that we're embroiled in a soft patch; however, the data has not deteriorated to the extent that it suggests the US economy is headed for recession over the next 12  months. Historically, the US stock market rarely peaks more than 12 month
s ahead of a recession so we believe we'll see new highs in the S&P 500 before this bull market is over. It's important to remember that the final 12 months of a bull market offer some of the strongest returns of the entire economic and market cycle. Lastly, I took a look at data since January 1962 and an inversion of the Fed Funds/10-year yield (which happened in March this year) typically precedes a US recession by around 18 months and the return from the date of first inversion to bull market peak is about 36.4%.
nolan01@verizon.net
3:34
In '09 I bought Atmos Energy @ $25.68 on Rogers recommendation for a dividend reinvestment and it is now above $108. I haven't seen mention on any of the portfolios, your thoughts.
AvatarRoger Conrad
3:34
Hi Nolan. Please see my answer to your question posted earlier in the chat. Basically, Atmos is a great company with a very pricey stock. The risk is all in the high valuation, as is the case with so many high quality utilities here in August 2019. There's little risk to holding for those with a 3 to 5 year time horizon. But for anyone who can't handle a 20% near-term pullback the next time utilities get sold off, it's a good time to take at least a little money off the table.
Pablo
3:34
ENLC is making a new low today down 60% from last October.  Any thoughts on the chances of a turnaround anytime soon and is the market pricing in a distribution cut?
james
3:37
please provide your assessment of CNXM
AvatarElliott Gue
3:37
It's an aggressive play; however, we have it rated a buy <$20. It has a solid cash distribution coverage of over 1.5 times though with a yield north of 11% it does have a high cost of capital. Also, concerns about gas throughput volumes with gas at $2/MMBtu.
AvatarRoger Conrad
3:37
Pablo, what's going on with EnLink is not unique. In fact, we're seeing MLPs across the board tank as investors appear to throw in the towel. As I've said regarding other MLPs, there's nothing in EnLink's Q2 earnings to suggest anything other than management will boost the dividend 5% a year the next several years. And there's been some heavy insider buying on the price decline, which suggests management is putting its money where its mouth is. That doesn't mean there's not risk of a dividend cut--just that one is not inevitable. And it won't take much good news to beat such a low bar of expectations.
Herm
3:44
Even high yield stocks like those on the High Yield List hasn't saved these shares from the MLP selloff. I own several on the list but the shares of ENLC are worrisome as the yield is now over 15%. Is this sustainable or a sign to step aside now.
AvatarRoger Conrad
3:44
If anything, the high yields themselves appear to be contributing to the selling, as they raise the fear level for future cuts. The result in my view is MLPs like EnLink, Enable, Energy Transfer etc are already pricing in distribution cuts, despite the fact that coverage ratios and revenue quality showed clearly in Q2 that they can afford to keep paying them--even as they pay down debt and internally fund CAPEX. To us that means the downside of future dividend cuts is priced in now, and if they don't occur we'll see a big recovery.That view could change if there's real evidence ENLC and others really are weakening. But again, we don't see that now.
AvatarRoger Conrad
3:45
Neither do EnLink insiders, as they're buying now in big numbers.
Michael L
3:46
Would you gentlemen please ask Sherry, or someone else to send an alert to subscribers when 2nd quarter results have been posted to the MLP Ratings pulldown tab. Thanks in advance.
AvatarRoger Conrad
3:46
I'll put together an Alert when they're ready. Thanks for the suggestion.
Jon B
3:48
What do you make of the rumor of a possible NBLX buyout? Is there a history between NBLX and the rumored buyers? Regardless of these rumors, are you guys interested in the stock at these levels and with the more certain environment in Colorado?
AvatarElliott Gue
3:48
I think it's possible you'll see more M&A activity in the Niobrara/Colorado market at all levels (upstream and midstream). Case in point: the recent PDCE/SRCI deal announced just yesterday. However, I think a more likely outcome from NBL's strategic review will ultimately be a deal to eliminate IDRs and, until that review is complete, I think it could be a headwind for NBLX. As a play on the environment in Colorado, we prefer WES and we think new parent OXY will be a supportive partner for them.
lee
3:51
do you know where epd exports mostly are going
AvatarElliott Gue
3:51
There's no way to know where they're going specifically but I suspect the breakdown would be similar to the US Total figures.

Despite all the talk of Chinese tariffs on US oil, the truth is that China isn't a particularly large buyer of US crude this year. In the first 9 months of 2019, China was the 9th largest US oil importer for the year importing 16.8 million barrels. That compares to Canada at 73.5 million barrels, South Korea at 52.7 million barrels, India at 43.6 million and the Netherlands and UK at 39.4 million and 33.5 million barrels respectively.

Chinese imports totaled a little over 112,000 bbl/day in the first 5 months of 2019 compared to total US oil exports as high as 3.770 million bbl/day this summer.
Pablo
3:52
How can AM be recommended since they are so dependent on AR and AR is not recommended?
AvatarRoger Conrad
3:52
We actually don't track Antero Resources (NYSE: AR) independently in EIA, perhaps we should in the future. But the main reason we're interested in Antero Midstream (NYSE: AM) is we get income off the yield while we bet on the family's plans--which basically depend on being able to realize savings from utilizing state of the art water recycling technology to cut cost. As you say, both companies will benefit from success or both will be hurt by failure to achieve targets. But either way, our preferred vehicle for making the bet is the midstream paying the still growing yield.
Pablo
3:59
It seems ENLC has been revised by Fitch to outlook negative.  The distribution increase was estimated at 0-5% and it now looks to me like they will be needing to pay down debt before they can raise the distribution.
AvatarRoger Conrad
3:59
Even if they didn't raise at all, at the current price they're yielding better than 15%. I would argue all they really have to do is hold that rate for shares to bounce back to 10 or more. I agree that holding onto the investment grade rating is key and that Fitch is essentially warning them to focus on leverage with today's revision in outlook. On the other hand, the Fitch opinion appears to be based heavily on forecast numbers--mainly an opinion that system throughput in Oklahoma isn't going to grow as fast as management now says.
AvatarRoger Conrad
4:01
Leaving aside a real question about how much credence to give a credit rater's forecast for oil and gas production, I would be a lot more worried were their opinion based on what we've seen. And again, a 15% yield is easily pricing in a 30% distribution cut, which would go above and beyond anything needed for deleveraging or self funding CAPEX.
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