JotCast | Energy & Income Advisor Live Chat January 2019

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Energy & Income Advisor Live Chat January 2019

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Howard F

3:22

Question from Mike C was cut off before it was completed

Steve

3:24

Please comment on EPD, CEPQ, & ENBL

Elliott Gue

3:24

We continue to like all three of these MLPs and rate them as buys. I believe the MLPs, and the industry benchmark Alerian Index, were all caught up in the big risk-off trade toward the end of last year and, of course, the sentiment spillover from the quick whoosh lower in oil prices. However, the fundamental picture for the best names is unchanged. Of the three names you mentioned, EPD is the highest quality and most defensive buy followed by CEQP and ENBL.

Mary

3:27

Any chance of an Actively Managed Income Portfolio for the EIA and CUI coming soon? I would love that!

Thanks for the suggestion Mary. We will discuss it. For now, we do include a large number of high yielding stocks in the EIA Actively Managed Portfolio.

We've also launched a new service called CUI Plus, which is an actively managed portfolio that's broadly diversified between multiple income producing sectors. If you're like to check it out, we're only taking orders by phone. Our own Sherry Roberts is always on hand from 9-5 ET Monday through Friday at 877-302-0749.

Jon

3:31

I read your email on KMI. Visibility to the future seems (and has been for the last year or so) high for the company, and thus expectations are pretty clear for the analyst community and potential investors. In your opinion, what is NOT in the stock already, to the upside or downside? Thanks.

Roger: I would agree with you that the analyst community is impressed by what Kinder is doing, But I also think a lot of investors (individuals and institutions) people are afraid of being "Kindered" again. Yes, that's a word I've read over and over again on investor blogs. No matter what KMI does now, there's a chorus of detractors determined to shout it down.

Of course, that's completely irrational. And sooner or later, so long as Kinder continues to post distributable cash flow growth, build assets, grow dividends, pay off debt and earn credit rating increases, the good news is going to hit the stock. But right now, Kinder has got to overcome a lot of skepticism that was brought on by first rolling up the MLPs and a

Howard F

3:32

On your old system I liked the clicking sound when you answered a question. I could be away from the computer doing something else in the office and I knew when the next answer was coming.

Yes, leaving Cover It Live was not our choice. Hopefully, we can make this new service eventually work better.

Roger Conrad

3:35

It appears my answer to the Kinder question was cut off. To finish that sentence, Kinder also cut its dividend by 75% a little over three years ago. That means a lot of people aren't going to believe its recovery until its too late. That will include a lot of people who suffered losses in KMI. It will not include CEO Richard Kinder, who whatever his faults has consistently bought company shares during the dark times. And he took a bigger hit than anyone on Kinder's decline.

Frank

3:39

Thoughts on ATGFF. Are the Pfd's available OTC?

Roger: I haven't changed my outlook on Altagas. I believe the dividend cut and the asset sales will allow the company to self fund CAPEX at least by the second half of the year. I think the new asset mix is quite low risk, with its heavy focus on regulated US natural gas distribution and I think the company will get its debt burden down to target size sooner rather than later. What I'm mostly uncertain about is timing the recovery, as the dividend cut and share price decline will keep many investors away from the stock for a while. But I think a 3-5 year time horizon for recovery is very doable, and I'm impressed that major projects like the propane export facility appear on track. Next earnings aren't until early March but I think we've seen the bottom for Altagas.

Roger Conrad

3:42

On the question of preferreds, a lot of foreign shares are available on the OTC market. There is a listed CUSIP number for the 5% perpetuity (021361837), which appears to be the most liquid of these. The hard part will be finding supply to buy these. But they definitely have a very high yield and trade well under the call price of $25.

Robert P.

3:49

Antero Midstream(AM), can you reiterate your position on this pre merger company with newly formed Antero Resources. In late October you quoted post merger company has tremendous upside. Since then the price of the stock has gone down. Would my interpretation be that the stock price is down even more than October that this is even a better deal than in October for growth and income?

Roger: I would agree with that. It was a little surprising to see Antero and other MLPs take the kind of pasting they did in Q4 of last year. The chief catalyst was almost certainly falling oil prices but I think we also saw a large number of investors basically throw in the towel, while others assumed the falling share prices were a death knell for these midstream companies and MLPs. In stark contrast has been the actual news from Antero--which announced strong 2019 guidance and raised its distribution 7% sequentially this month from the previous payout (up 29% from a year ago). This is net of principal customer Antero Resource

I did not know when you click the 'enter button' the message would send, sorry. I want to commend you guys for all the advice you provide for private investors and you guys have a leg up on any other service I can think of. Thank you both and look forward to spending these chats with both of you, Robert

Thanks so much Robert. I promise we will get these kinks out.

Howard F

3:51

I sold ENCL for ENLK. Are you saying to now sell ENLK and buy back ENCL

Roger: No, ENLK is now merged back into ENLC. You once again own ENLC units, though after a modest gain and with the benefit of taking a tax loss. We now plan to hold EnLink Midstream the combined company for some time.

Herm

3:55

My question as to ET appears in the chat at 3:09 but there is no answer

Roger: Apologies for that. I'm not sure why that happened. We do now recommend Energy Transfer LP (NYSE: ET) as a buy below 15. The merger and subsequent distribution cut at the former Energy Transfer Partners has freed up enough cash that, combined with new pipelines successfully coming on stream, allows the company to self fund its CAPEX, And coupled with proceeds from asset sales, management is also finally getting a handle on its debt load. That's still a challenge with $6.562 billion maturing by the end of 2020. But a successful $4 billion debt offering earlier this month should help. We expect a solid round of numbers and guidance when the company reports its Q4 in late February.

Buddy

3:58

Would appreciate your latest take on ET. thanks

Roger: Buy up to 15--which I should point out is a reversal of our long-held bearishness on the former Energy Transfer Partners. But again, the big distribution cuts and asset sales we've seen have tackled the company's biggest challenge--debt reduction--head on. We like the assets and after the decline in price, the yield is pretty generous. We could even see a return to regular distribution growth next year.

mariiyn

3:59

Interesting...fyi I did not resend my message at 2:41 for the second time at 3:14...I minimized the window and opened a different window...wonder if this caused it to repeat the earlier request even though nothing was shown in my chart box?

Roger: I wish I could tell you. But we take note of your comment and will try to have an answer by next time.

Robert P.

4:05

Are you still upbeat about Antero Midstreams creation of the fracking water recycling system they are working on and that other shale producers, even competitors would be purchasing the use of AM's recycling system?

Roger: I am very upbeat on frac water recycling as a growth business. It's inevitable that successful shale producers will be recycling most or even all of their water within the next several years. In Appalachia, there's a lack of disposal sites that require producers to contract to have immense quantities hauled out by truck unless they're lucky enough to be near one of the few pipelines. In Oklahoma and Texas, it's the fact that disposal wells are causing earthquakes that even these most pro-energy industry states can't ignore. But the main impetus is simply cost and reliability. Recycling not only can cut up to 70 percent of water costs but it ensures there will be water on hand to drill--no one has to depend on supplies getting trucked in.

The last time we talked with Antero management, th

Brian

4:06

I've read your opinions on the macro economic environment and I concur. I'm curious as to your outlook for the major indexes in general since midstream gets sold off with etfs ect.

Elliott Gue

4:07

I'm pretty bullish on the broader stock market. Historically, stocks don't peak unless the US economy is eithing 12 months or so of a recession and our indicators suggest that a US recession in 2019 is unlikely. That suggests to me we'll see new highs in teh S&P 500 this cycle. In addition, the Q4 sell-off was around 14%, which is extreme. I looked at 3 month rolling returns in the S&P 500 back to 1928 and there have been only 57 similar sized sell-offs in history. I've seen a lot of pundits say that the big Q4 sell-off is a typical start to a bear market but that's NOT the case. Bear markets don't start that way -- most mini crashes of the magnitude we saw in Q4 occur at the END not the beginning of bear markets. That said, we have occasionally seen sell-offs like Q4 2018 during "growth scare" markets such as 2011 and 1994-95. I believe that's more likely what we saw in late 2018 and these mini-crashes typically result in impressive gains over 3, 6 and 12 month holding periods.

Roger Conrad

4:08

Well, it looks like the system as we've set parameters at this point is cutting off all of my long winded answers. To finish my point on Antero, management said then (May 2018) that Antero Resources would be its primary customer at the water recycling facility for the time being but that there were plans to expand to accommodate third parties. I think when they report Feb 13, water will already be close to 30% of EBITDA and I consider this another great reason to hang with the combined AM/AMGP when the merger is closed later this quarter.

Robert P.

4:09

Roger, we need to see your picture before your name like Elliott's. Just kidding. Since subscribing to 3 of your publications, I have pretty much ended other subscription services because of the trust, accountability and advice you provide. Thanks again.

Elliott Gue

4:09

Thanks for the kind comments about the service. We do really appreciate it. Next time Roger is down here in Miami I'll make sure to take his photo and create an avatar for him!

Roger Conrad

4:10

I think everyone has probably seen enough of my picture but I promise I will get an avatar up by the next chat.

Guest

4:15

Your opinion on CVI ?

Elliott Gue

4:15

I am not bullish on the refiners. In fact, I think the group has a problem in that they're struggling to produce sufficient quantities of diesel due to increase US shale production of very light crude, which results in a lower yield of distillate per barrel. That said, I am bullish on agriculture and fertilizer markets, which is a significant market for CVI. I just think there are better plays on ag elsewhere.

Doug

4:18

Why isn't the price of A T & T rising higher?

Roger: AT&T announces their Q4 results tomorrow, so we'll have a much better idea of where the business stands then. I think a lot of people are going to be more or less mono-focused on how many wireless customers they gained or lose, as well as what the DirecTV customer trends are. And I expect we'll see a rough continuation of the same trends we've seen for both over the past year--losses at DirecTV, offset by modest wireless growth. I'm going to be a lot more interested, however, in how they're pairing the Time Warner Inc content with the rest of their business, as Comcast has done so successfully the past few years. If that's the case, I don't care so much whether their traditional pay TV customers are switching to streaming. I also want to see how they stacked up on free cash flow, which is the key to cutting debt and raising dividends. The biggest pre earnings call observation I have is the stock trades at only 8.5 times expected 2019 earnings--that valuati

Roger Conrad

4:19

To finish my answer, that valuation means very low expectations, which may help AT&T stock tomorrow. But the commentary I'll be publishing later in the week will be focused on the longer-term themes that will drive this stock the next 2 to 3 years, rather than the next 2-3 days.

Janet

4:26

What is your opinion on the upstream companies like CVX in terms of buying option calls for later this year? They seem to be in a holding pattern.

Elliott Gue

4:26

Implied volatility in the options market has come down from late-December extreme levels; however, it's still pretty elevated compared to historic norms. Thus, if I were looking to trade options on a stable name like CVX that we're looking to buy anyway, I'd be looking to sell puts rather than buying calls. Just looking at CVX, it looks like you could generate $3+ ($300 per option contract) by selling Feb 15, 2019 at the monies on the stock (that's not a recommendation, just an example of what's possible). That's 2.7% of premium income over just the next 17 days...We're actually doing something similar in our Deep Dive Investing service with names outside the energy industry.

Jon

4:28

Don't want to beat a horse that you have already commented on, but regarding KMI, I'm wondering if they have intimated growth possibilities past 2020 (and correspondent dividend growth). These kind of stocks always seem to take a hit when dividend growth slows, no matter how clearly forecast. And this type of news could be particularly negative if interest rates ever gather some steam upwards. Thanks again.

Roger: That's a very good question. I do think that Kinder's 25% dividend increase in 2020 will be followed by a move to more modest but sustainable growth--probably in the mid to upper single digits. On the other hand, I don't think anyone expects Kinder to grow its dividend by 25% a year indefinitely. And even mid single digit growth off of a yield of 7 percent is a pretty decent value proposition. I'm also reasonably certain the 19 Wall Street houses recommending KMI as a buy aren't expecting perpetual 25% annual dividend growth either.

You raise a good question about interest rates as well. This is t

Roger Conrad

4:29

Another cutoff. Anyway, the thing about interest rates is they don't drive returns on dividend paying stocks--growth does. In fact, there is no real correlation between changes in benchmark rates and annual returns for dividend paying stocks. So long as Kinder grows as a company, it can perform as a stock over a meaningful holding period whether rates are rising or falling.

ken in phx

4:35

We are still waiting to see whether UGI decides to cut APU's dvd or waive IDRs. How much "help" does APU's balance sheet/liquidity need? Isn't a dividend cut more likely, given that they are essentially shut off from raising equity at current price of APU? Would waiving IDR cover their growth capex needs? For how long?

Roger: Amerigas and UGI both announce their FY 2019 Q1 results on February 5, so we'll know a lot more about the situation then. APU did just today declare a quarterly distribution of 95 cents per unit, same as paid since May 2017 and there's been no statement from anyone they won't continue to pay that. As I've pointed out, this company did cover its distribution plus CAPEX with cash flow in FY2018 (end Sept 30). It has no maturing debt until 2022 and a supportive parent in UGI, so there's no immediate reason to reduce its distribution. I expect to see a strong winter quarter that improves financial flexibility. The reason for the hold rec is management raised some questions about IDRs and fu

Roger Conrad

4:37

Sorry, these answers keep getting cut off--something to work on next time. To finish the Amerigas answer, management raised questions about strategy which increased uncertainty. But I don't think there's anything inevitable about a distribution cut and I think we will see strong cash flows this winter due to cold weather. Next earnings are February 5,

Frank

4:40

Could you revisit your "advice" to sell AM and buy AMGP?

Roger: This was a recommended end-year move for readers who held AM in a taxable account--and therefore had a loss from our initial entry point. At this point, our advice is to hang onto both AM and AMGP through the merger. As I've indicated in several answers this chat, this is a solid company with a great deal of distribution growth potential--for one thing from the water recycling business.

Ralph

4:45

Fidelity indicates that there is no CUSIP 021361837, which you have identified as AltaGas perpetuity stock. Please check the Cusip number.

Roger: That's the Cusip symbol listed on Bloomberg Research. They also show an "ID Number" EP0523431, as well as what's presumably a Toronto Stock Exchange symbol of "ALA K". I'm not sure why Fidelity wouldn't have this symbol. It could be because Altagas is a Canadian company and I've seen Fidelity flummoxed even by Canadian companies with common stocks traded under five-letter OTC symbols as Altagas is. Good luck tracking down these securities.

4:47

thanks

Roger: Thank you for pointing these out. They do look interesting if I can figure out a way for everyone who's not Canadian to buy them.

Herm

4:53

Roger, As a CUI subscriber Would you please comment on the earning of VZ which was off $1.79 today

Roger: I'm going to have an update on the Big 3 Communications companies out later this week. My initial impression from the reaction to Verizon's Q4 and guidance is there's a whole lot of nitpicking going on, and a lot being written of questionable value on the market's reaction to the news. For example, there's a series of headlines about the "disappointment" of revenue growing 1% to $34.3 bil, versus a supposed analyst projection of $34.4 bil. Also, a lot of people are apparently ready to write off 5-G now because it didn't deliver a bigger revenue boost.

Roger Conrad

4:55

Rather than have my Verizon answer cut off, I'm going to continue it after posting the first part. I think the real reason VZ backed off today is simply that it has been outperforming the rest of the industry. And though it trades at barely 11 times estimates 2019 earnings, that was enough to trigger selling. Again, I'll have more on VA

5:01

Continuing, more on VZ as well as T and CMCSA later this week. But here's briefly what I think was important in VZ numbers and guidance and why I don't see today's reaction as really anything of note--other than as a statement on the fear level of this stock market. First, VZ improved profitability and beat earnings guidance. It raised revenue despite a long overdue restructuring of the Oath (AOL etc) division. It added wireless customers while proving 5-G works. It cut costs in line with expectations, increased cash flow by nearly one-third from 2017 and generated $17.7 bil in free cash flow, cutting debt $5.2 bil, raised pension funding to 91% (was 70% in 2016), added wireless customers, held churn to an industry low 0.82% and added new Fios users. Sounds like a solid quarter to me.

Lyndon

5:05

Will you begin covering BP Midstream soon?

Roger: Sorry we have not added it to date. It has a generous yield, solid and sustainable distribution growth rate and a supportive super major parent in BP. It's also down quite a bit from last summer. Q4 earnings report out February 28. Look for us to add it to our MLP/Midstream ratings table in the near future.

Herm

5:05

Shares Of MRO and WPX have moved a little from their Dec. lows but are still far below the 52 week high and our buy under price. If the price of oil improves over the next few months do you think these stocks will follow along?

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