JotCast | Energy & Income Advisor Live Chat August 2019

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Energy & Income Advisor Live Chat August 2019

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Roger Conrad

4:03

I would add also that even Fitch isn't forecasting a dividend cut--rather 3% distribution growth in 2020 and 2021.

4:05

They've even left open a path to a rating increase--coverage ratio 1.1X or better with debt to EBITDA closer to 4X the next couple years.

Buddy

4:20

It seems like the mid-stream MLPs are under pressure again despite great quarters. ET is back to a very depressed price of 13 and EPD is back to 28. Your comments please.

Roger Conrad

4:28

I don't have a lot to add to comments from earlier in the chat, We also addressed this question at length in the Q&A Feature of issue of EIA we posted this week. Again, we believe there's a major disconnect between the strong and improving performance of the best in class MLPs as businesses and their abysmal share price performance. So long as businesses keep growing as they did in Q2, we believe there will eventually be a major recovery in share prices. In the meantime, Energy Transfer covered its distribution twice over in Q2 while posting its best leverage numbers since early in the decade. EPD is equally strong on both counts.

4:31

I admit I expected we would see the share price recovery much sooner in the cycle--as we did with utility stocks from the Enron implosion in the previous decade. But the record is pretty clear that the key to every recovery in the stock market is a sustained business recovery that eventually overcomes investor skepticism that always follows a big share market decline. So long as EPD, ET and others are posting the business numbers, I'm willing to ride out this kind of action, however disheartening it may be.

Guest

4:31

I am late to the broadcast. Sorry if you have answered questions on AM and ENLC. they seem to just go down and go down in the past month. What are your current thoughts about these two?

Roger Conrad

4:35

I hate the share price action. But based on what we saw in the Q2 numbers and guidance, I think there's far more upside at these prices than downside. As we've said, for Antero the case rests of whether the MLP and its parent Antero Resources can realize those target savings from improved water management. For EnLink, it appears to be proving that volumes aren't going to drop off a cliff and that leverage will remain under control. In retrospect, our risk/reward would have been better buying these stocks now that they're yielding 15-16% rather than 10-11%. But just as they've been volatile on the downside, so both will recover fast if they can put up the numbers.

Mark

4:41

Just getting to the live chat and if it hasn't already been addressed could you provide your thoughts on oil and NG pricing going forward and the impact of our geopolitical environment (trade and tariff issues , weakening worldwide GDP growth, and Corporate expense tightening) on both demand and supply. What would be the impact on our portfolio and energy as a segment if the democrats win the white house next year. What do you think will happen if Trump earns a second term. When will the market begin to adjust to these possible scenarios. Thanks

Roger Conrad

4:41

I won't repeat what Elliott has said during the chat, or his answer to this question during the Q&A Feature of the EIA issue now posted. But basically, in light of all those challenges you've pointed out, the real wonder is that WTI crude has held right in the $50 to $60/bbl range pretty much all summer. Obviously, any or all of these factors could worsen in coming months. That's why as Elliott mentioned earlier in the chat we look at 10 major warning signs--a "checklist" for when a recession/bear market is nigh. At this point, some indicators are tilting that way but we're not there yet.

Roger Conrad

4:42

When we are, we'll look at things differently. But until enough of them are flashing red, the odds favor us being in the last stage of this bull market--rather than in a bear market already. And the last stage has often been the most profitable to stay with positions.

4:46

That includes energy, which is far and away the cheapest sector of the market now. As for politics, the fact is trying to base an investment strategy around what you think candidate X will do for the broad economy and stock market most often leads to disaster. Elections often do have consequences for individual stocks and even whole sectors. But I remember March 2009 trying to talk readers out of abandoning the stock market because they were afraid the president was a socialist. Those who did bail missed one of the greatest rallies the world has ever seen. Lesson: Politics are fun to speculate about but don't try to forecast the stock market based on the outcome of the 2020 presidential election.

Andy

4:49

What are your thoughts on WES.

Roger Conrad

4:49

As I noted earlier in the chat, it's down primarily because investors are concerned OXY will sell the stake it acquired with Anadarko on the cheap to cut debt, as well as OXY cutting back the business it does with WES. We think a firesale is highly unlikely, and believe if OXY did cut back its traffic on WES' system that the partnership would be able to replace it. Bottom line, our latest High Yield Energy List addition looks like an exceptionally cheap stock.

Mark

4:53

Could you comment if not already done on MRO, WPX, OXY, SLB, and HAL. I am aware of your recent recommendations on SLB and HAL. Why do you think we should stick with even a 50% position in HAL? Thanks ... it has been a rough time to be a long term holder of some of these.

Roger Conrad

4:53

I won't comment beyond what Elliott already has said during the chat on those companies, other than to say we feel the same way about how difficult it's been to stick with energy stocks in general. It's a pretty good reminder that just because an investment is cheap doesn't mean it can't go lower before recovery. But the bottom line is so long as these energy companies stay strong on the inside, investors will eventually take notice--and at that time, we'll see higher prices. In the meantime, we're there in the trenches with you and we will continue to give our best advice in EIA.

Michael

4:55

Any thoughts on the proposed TechnipFMC separation ?

Elliott Gue

4:55

Yes, I actually think it's a nice positive for the stock, which is already showing good relative strength in the face of a tough tape. I generally think spinoffs do a lot to enhance value and put the focus on growth levers. So, in this case you have the LNG business (more of a backlog business with free cash flow) and the subsea business, which benefits more from the recent upturn in international and deepwater spending. Appeal to two different types of shareholders and I think the 2 companies result in clearer investment stories.

Dan P

4:57

Thanks for the services and these talks. I've seen multiple mentions over the past year of Elliot's 10 pt checklist (and even the full methodology at one point). I'm placing a fair amount of trust in the results. Any chance you might add a recurring update (or at least an alert) in each of the services ... esp, if things start to point substantially further south.

Elliott Gue

4:57

Yes, absolutely. If we were to see a major deterioration in the macro picture or the risk of imminent recession, this would definitely be something we'd write about in Energy & Income Advisor (and all our services to some extent). No doubt it's impossible to separate the macro picture from the outlook for energy prices.

Elliott Gue

4:59

Also, I normally do a deep dive on the economic outlook a few times per year within Energy & Income Advisor and will put it on the list of things to cover over the next few issues.

Eric

5:03

Are there any oil and/or gas producers who are good shorts to hedge my long midstream stocks?

Elliott Gue

5:03

At this time, we're not recommending any in Energy & Income Advisor but it's something we'll be looking at seriously as we get later on in the bull market and closer to an ultimate market top. In fact, earlier today we were talking about developing a list of vulnerable stocks -- a sort of "blacklist" of stocks in various industries -- that we think are vulnerable and might make good short candidates. I think in the past in Energy & Income Advisor we've used short/inverse ETFs on oil and energy stocks as a hedge when the outlook sours as well as some individual short ideas we've, mentioned in the past (APA and the frac sand companies being two I can remember in the past few years). Right now though, I actually think the balance of the risks are skewed to the upside in energy.

Michael

5:04

Thanks for all you do. Any thoughts on the

Elliott Gue

5:04

Thanks for attending the chat! I think the second part of your post and question might have been cut off by the chat software.

Roger Conrad

5:16

Thanks everyone for tuning in today. If for some reason we missed your question, please write us at service@capitalisttimes.com

Elliott Gue

5:17

Looks like that's all the questions for today. Goodnight everyone!