JotCast | Energy & Income Advisor Live Chat December 2019

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Energy & Income Advisor Live Chat December 2019

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Roger Conrad

3:35

Delek is not one we've talked a lot about lately. But from all indications business is still steady--coverage ratio 1.11 times in Q3 and solid EBITDA growth in the business of pipelines serving downstream energy companies, which is historically very steady. We continue to rate it a buy on dips to 28 or lower. For PAA/PAGP, see the answer I gave a moment ago in the chat.

Ken in Phoenix

3:35

Progress report on OXY? Assuming they do what they say they are trying to do, where do you see the stock in 2-3 years?

Elliott Gue

3:35

They're ahead of schedule and asset disposals are running near the high end of their guidance. Their recently negotiated joint venture with Ecopetrol is another example of how they can monetize assets and cut capital spending needs without selling the proverbial "goose that laid the golden egg." The only way I can get to the current valuation of OXY is if I assume that oil prices are headed to $50/bbl or lower on average in 2020 and OXY cuts their payout -- that's not my expectation and I think that once they prove their ability to generate copious free cash flow in 2020, concerns about the div will recede. The dividend is currently $3.16 per year (paid quarterly) and historically OXY has traded with a yield closer to 3 to 4% rather than 7% to 8% recently. Should the market gain confidence in dividend sustainability and the merits of the OXY-APC tie-up, the yield should return to the long-term average. That implies OXY trading at between $79 and $105, up from about $40 right now.

Hans

3:38

CLB is now down $ 10 or 21% is this a time to look at this stock

Elliott Gue

3:38

Frankly, I am a little surprised at how much it has fallen given that North American issues should have been priced in. My guess is that the selling pressure related to the dividend cut rather than the earnings and guidance miss. Thus, I think it's overdone -- a knee-jerk reaction in a period of low trading volumes. That said, I want to spend some time diving into their release before I'd recommend adding to the position in Energy & Income Advisor.

Mack

3:39

HESM has been grinding higher since its conversion to C-corp. How much further can it go? Do you think institutional money is going to the stock now that it's no longer an MLP? Thanks..

Roger Conrad

3:39

So far at least it looks like that might be the case, though you could also make a pretty good case that Hess was just following the rest of the midstream sector higher this month. This has been our most successful High Yield Energy List company to date, in part because of the conversion decision, which also added a number of valuable cash generating assets. But our view is there's still a lot more upside ahead as Hess proves its resiliency in the midstream stress test.

Mack

3:42

Firstly guys, thanks so much for your time & advice both in these monthly chats and the regular issues.

Roger Conrad

3:42

Thanks Mack. we appreciate it.

Michael P

3:43

Roger and Elliott, we would like share our heartfelt appreciation for your insights and recommendations in your various publications over the last thirty years. Our financial rewards have allowed us to pay for five college degrees for our children, a house for each family member and a nice retirement for us. Thank you both very much.

Roger Conrad

3:43

Thank you Michael. That's very gratifying to hear--really makes my day.

James

3:45

What about 5G I thought you would have something to say about iT. ( LX, NEO,MRVL,} wHAT ARE YOUR THOUGHTS ON WHO WILL MAKE THE MOST PROFIT?

Elliott Gue

3:46

We primarily cover 5G as a theme in our Deep Dive Investing service, as Energy & Income Advisor is more energy sector specific. I did mention earlier that in Deep Dive, we've recommended some exposure to semiconductors and that's a group that will benefit from 5G rollout. ON Semiconductor (NYSE: ON) is one stock that has underappreciated exposure to 5G though I believe the stock has traded a little bit over where we recommended buying it a few months ago. We also have Texas Instruments in Energy & Income Advisor as its products are a key piece of the puzzle when it comes to developing more energy-efficient cars among other things. Within energy, 5G will help enable the more advanced technologies being developed by companies like SLB to monitor oil and gas wells and maximize reservoir production (for example, installing sensors around a well to collect data in real-time).

ron

3:56

Roger, In your Utility Investor publication, you have a monthly focus stock which is held in the portfolio and has a good entry point. I find that this is very helpful in putting new money to work. Is it possible that such a procedure could be implemented in E&I advisor?

Roger Conrad

3:56

That's a great idea--we've actually been featuring developments on individual portfolio companies in the portfolio discussion, basically comments on a number of them. Maybe highlighting that a little more? Thanks!

4:04

I have not paid attention to volume on the recent increase in the MLP & energy sector. Do you for see a January bounce or decline to the energy sector after this solid December?

Roger Conrad

4:05

It's tough to call what's going to happen month to month. But the important thing as we see it is that energy stocks are set up for a strong 2020. That starts with companies proving resiliency in an environment where capital spending is being cut back to match cash flow. For MLPs and midstream, the key is how well they're prepared for what will likely be lower system throughput in many regions. But investors expectations are very low and if companies can simply maintain dividends, that may be enough to extend the rally we've seen in December. it's a stock pickers' market as not all will succeed. But we're confident entering the new year with what we've been recommending.

Elliott Gue

4:06

While energy stocks have done well this month, the sector was the worst performer in the S&P 500 last year so I don't think it's stretched froma fundamental or technical basis. Historically, as silly as it may sound, you often see sector rotation with the flip of the calendar and I believe one of the big stories in 2020 will be an acceleration of the rotation out of growth stocks and into energy. I think that bodes well for the new year.

Jim N

4:06

What is your current opinion of Energy Transfer LP (ET)? Now that it has gone up some in the past month is it a buy or sell?

Roger Conrad

4:06

Energy Transfer is still well under our buy target of 17 even after the late year surge. And as I pointed out earlier in the chat, business fundamentals still look very solid.

Roger Conrad

4:08

Hey folks. That's all we have in the queue now as well as from emails received prior to the chat. This is the last time Elliott and I will talk to you this year, so we both want to take the opportunity to thank everyone for your business in 2019 and for the year ahead--which we believe will be a year of opportunity in the energy sector.

Elliott Gue

4:09

It looks like that's all the questions we have this month. So, I want to take this opportunity to wish everyone a very happy and prosperous New Year! We believe energy is setting up for a strong 2020; in fact, I think that we may be seeing the best buying opportunity in some of these names since 2009.

Roger Conrad

4:09

If anyone has a question that for some reason didn't get answered during this chat, please send it to service@capitalisttimes.com.

4:10

Thanks again everyone and see you next year!

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