JotCast | Energy & Income Advisor Live Chat March 2019

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Energy & Income Advisor Live Chat March 2019

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Roger Conrad

3:05

If you mean SHLX, this is a name we recommended exiting at the end of last year for a tax loss and because the general partner has been very vague about its long-term plans for the MLP. Since then, we've upgraded to buy up to 20 mainly because of its high yield/low valuation but also because there are indicates Royal Dutch will continue to support the MLP structure, rather try to roll up midstream assets. RDS continues to push itself toward power and LNG while cutting back leverage. With that plan, an independent SHLX paying a generous dividend works best--though I think distribution growth is likely to level off at a mid-single digit rate.

Hans

3:17

In Dec. you advised us to sell VET,ATGFF,ENCL,CPLP,SHLX,NBLX,I am sure some of us did not or could not sell those as most of them had a VERY big loss compared to the buy price (40 to 60 %) what is your advice now on those.

Roger Conrad

3:17

We continue to track all of these companies in our coverage universes. As we indicated then, we felt the end of year tax loss season was a good opportunity to redirect capital into names we believe have more upside. And for the most part, that's worked out.

We've answered questions on NBLX and SHLX already during the chat. In the case of Altagas, we subsequently reinstated a buy recommendation, as Q4 results indicate recovery is ongoing and the bottom is in. In the case of EnLink, the advice was to swap ENLC for ENLK, which allowed readers to take a tax writeoff while keeping exposure to what we still believe is a high quality position. They've since completed the merger, so anyone who did make the swap now owns ENLC again, just as anyone who didn't make the swap does. VET is again a buy. We think Q4 results demonstrate resilience in the face of volatile energy prices and believe the dividend will hold, though all producers are always at risk to price drops. Finally, CPLP is in the midst of a quite complic

Elliott Gue

3:18

Synovus (SNV) is a regional bank in the southeast. The regional banks are a tough group right now...the market hit all of them hard after last week's Fed meeting because banks like rising interest rates (boosts net interest margins). I think it's overdone because the market seems to be pricing in a Fed rate cut this year, which I believe is unlikely. However, in modern markets, driven by fast money moving into and out of ETFs and "quants" buying or selling baskets of securities based on various factors, news events like that can drive sector-wide rallies and surges. Fundamentally, I like SNV -- I actually think their acquisition of FCB added needed loan growth and they can drive earnings growth via cost cutting and a better deposit gathering footprint. Like most regionals it's cheap. It's a name that we've recommended in Deep Dive Investing and that we still like -- I've recommended a "stop" discipline to get us out if the banks take another leg lower. Buy I think, eventually, SNV will do quite well.

Roger Conrad

3:19

To finish---CPLP is in a quite complicated transaction and we rate it a hold until there's a real indication of what Diamond S will the worth. The key here is that both businesses--liquids and bulk--are weak at the moment. They have scale which is a huge plus to surviving tough times. But it could be a while before we see meaningful returns. That's one reason we closed the position last year.

Steve O

3:21

Are you currently recommending OILU or UCO trades? Or market index hedges like PSQ?

Elliott Gue

3:21

We have a trade in crude oil in our Pig vs. Bear trading product (we've been long USO for a while). We don't have any short market hedges. In Energy & Income Advisor we don't currently recommend any oil ETFS though we have significant exposure to oil via our long recommendations in many stocks and MLPs.

barrgold

3:24

Is OKE , OK?

Roger Conrad

3:24

It's one of the strongest North American midstreams. The only thing wrong with the stock now is it's well above our buy target of 65. But this is a well managed, conservatively run outfit that continues to produce strong volumes and project growth, has high coverage (1.37 times) and a powerful balance sheet. EBITDA growth is expected to slow this year to around 6% and then take off to 20% next--lumpy but does ensure strong dividend growth.

Steve O

3:29

Among the companies that have gone through "simplification" transactions, which are most attractive now?

Roger Conrad

3:29

Enbridge definitely got a good price for its affiliates. We rate it a buy up to 35 and believe it should be able to back up guidance for 10% dividend growth. That's not to say there won't be challenges at certain projects--getting the remaining Line 3 permits in Minnesota for example has been problematic. But the bottom line is they have a lot of projects and have reduced leverage so they should be able to continue growing. We like the new Antero Midstream Corp and EnLink Midstream--both of which are in our Actively Managed Portfolio. So is Kinder Morgan, which did its deals almost five years ago.

Roger Conrad

3:29

ONEOK is also the product of a roll up merger.

Herm

3:30

Your calls a few months back for higher oil prices was spot on as the oil related stocks in my portfolio have moved up accordingly. But for this to continue I wonder if issues like the China deal or the yield curve will prevent the market from moving higher even in the face of higher oil? Today there is even talk of a rate cut.

Elliott Gue

3:30

I just don't think the economic fundamentals have deteriorated to the extent that a rate cut would be warranted. Also, it's important to remember the historic relationship between the yield curve and the market. For example, in the last cycle, the US yield curve inverted in January 2006 and the market did not top out until October 2007 -- in that period, the S&P 500 soared 26%. In the cycle before that, the yield curve inverted in September 1998 and was up 50%+ to the 2000 top. So, short-term gyrations aside, I don't see any of this as an impediment for either oil or the market this year.

MartyR

3:30

Elliott Gue

3:30

Good afternoon.

Mack

3:32

Further about CPLP... I think the spinoff is supposed to close this week (on the 29th), and then at a later date, DSSI will do something with its shares, and CPLP will do a reverse split with its shares. So for those like me who are still holding CPLP we just wait and see what happens. Maybe one of these surviving entities will be attractive and the price will go up!!

Roger Conrad

3:32

I think if you've held onto CPLP this long, you might as well see what happens with the spinoff/merger. Certainly, we thought this deal should have been treated more bullishly by investors and we see some real long-term benefits. What we don't really know is where Diamond S will trade and how long it will take for the dry bulk and liquids shipping businesses to bounce back. I think the sum of the parts will be worth more than the current whole is being valued. We will continue to cover these companies in EIA in our MLP/Midstream universe.

Keith

3:32

Whats your take on RDSa. they appear to be focusing on the LNG project in Kitmat BC Canada. And have put a small refinery in Ontario up for sale. Yeild is currently 6%.

Elliott Gue

3:33

Shell is one of our favorite majors. They have a number of core competencies including LNG and also deepwater. In particular, they've been working to get deepwater costs down to the point that these long-cycle projects can compete with shale. From an investment standpoint, Shell should be a leader in terms of free cash flow in coming years -- they do not face the need to spend heavily to boost output and replace reserves near term, as XOM does.

MartyR

3:38

hi where would i find the stop prices for banks

Elliott Gue

3:38

The banks are recommended in Deep Dive Investing -- if you got to the website and check out the article I just posted yesterday (it's very long piece that appears when you first log in) you will find out recommended stop strategy and levels for every stock I recommend in the Deep Dive Portfolio, including the banks. One very important note: We do NOT recommend setting "hard" stops with your broker as there's a strong tendency for these stops to get hit in fast markets. Instead, we have established "stop" levels -- when a recommended stock CLOSES below these levels, we send out an alert recommending the sale the next morning.

The table of stops is located towards the end of the issue

John

3:40

It seems like the pipeline shortage from the Permian Basin to the gulf coast is coming to an end. But there seems to be a shortage of terminals to load the crude onto tankers for export to other countries. Are there any plans to build additional terminals and are any of them deep water terminals?

Roger Conrad

3:40

The easiest and safest way to play this area is with Enterprise Products Partners. One of the reasons their investor presentations always have a macro portion is they're by far the biggest and most focused player and even when they arguably pay too much for an asset (Oil Tanking Partners earlier this decade) they make the economics pay off. They have a very aggressive capital program the next several years that's centered around exports and their client list includes the two companies that figure to ramp up Permian output the most going forward--CVX and XOM.

I would also say, however, that while the near term takeaway capacity shortage is being alleviated by some new capacity, if XOM and CVX really do ramp things up going forward, there's going to be a need for a lot more. As Elliott answered earlier to a question about the MMP project, that need may be a little longer term. But this is at best a pause, which is good news for pipeline companies.

MartyR

3:48

are you going to be able to put the time stamp in the recorded transcripts?

Roger Conrad

3:48

Hopefully. I do see the chat is coming up on the website with times shown.

Eric

3:54

In the last 12 months, MMP seems to have lagged most of the other pipeline companies in the Active portfolio such that they've perhaps lost some of their prior premium valuation when looking at EV/EBITDA or P/DCF. Do you agree with this assessment, and if so, what is the explanation and do you think they'll regain their prior premium to other pipeline companies?

Roger Conrad

3:54

To add to what Elliott has said earlier in the chat, Magellan is an exceptionally conservatively managed midstream company. That's one of the things we've liked about it over the years. They've been able to stick to that discipline and find numerous projects to grow EBITDA and the distribution at above sector rates consistently. What I think is happening now is management is saying we could keep that growth rate but what's more important to us is to stick to the discipline--and for that reason they seem to be focusing on smaller projects rather than large ones--such as the Permian pipeline they said today is "unlikely."

When Elliott and I started an MLP advisory for our old publisher back in 2009, we had no problem adding MMP as a top recommendation--it has compelling value and growth and it served us well. One reason we took so long to add it to the EIA Portfolio when we went independent was high valuation, everyone had discovered it. Now that they've become more conservative, it's become a laggard again.

Roger Conrad

3:55

We think that's an opportunity to buy this MLP, which has proven its ability to thrive long-term in this business. Also, MMP has no general partner--there will be no roll-up merger.

Buddy

4:08

With 2020 now projected by some analysts and industry CEOs to be the peak year for U.S. shale production with declines to follow, mostly because the production of sister wells is proving to be disappointing, how will this impact the pipeline companies like KMI, EPD and ET? Thanks.

Elliott Gue

4:08

Theoretically, lower growth in volumes produced would be lower throughput and eventually lower cash flows (though most pipelines are protected under industry take-or-pay deals for many years into the future, and certainly well beyond 2020). That said, I seriously doubt that 2020...or even 2025 or 2030 will be the peak year for US shale oil production. What will happen is that growth will slow sharply from the growth we saw last year (+1.6 million bbl/day) but it won't peak.

Roger Conrad

4:09

Adding to what Elliott said, for pipeline companies, I think as we saw with the MMP decision to cut CAPEX and move away from the Permian project is a pretty clear indication this sector is also playing things very conservatively. And in any case, Kinder is basically a gas pipeline play rather than oil, so issues like peak shale are really not a consideration. Enterprise has positioned for exports and ET has more long haul pipelines. But keep in mind that in many regions takeaway capacity is still in shortage.

Buddy

4:10

When do you expect the offshore deep-water drilling to finally pick up. Is the best direct driller play RIG?

Elliott Gue

4:11

RIG is best of breed but we don't recommend any of the deepwater drillers here. I think FTI is an interest play on deepwater and (though not a pure play) SLB has leverage there. I think drilling is already picking up but it will be a few years before that translates into higher dayrates needed to drive these stocks.

4:12

I think SLB is the stronger company for the long haul...Their technology leadership plays well with what producers want. So, if I were buying one for a 3 to 5 year holding period SLB would be it. For the second half of this year, I think you probably have more upside in HAL as producers frack wells they've been waiting to put into production for the past few quarters (due to pipeline shortages).

Buddy

4:12

If one wants to invest in just one oil service company at this time, do you favor HAL or SLB?

Hans

4:13

EPD just cannot get past the 29-30 level, what does it take?

Roger Conrad

4:13

I think patience. Our consistent view when EPD was $40 plus and so many were recommending it as a buy was that it was too rich. In fact, we made EPD a pan following one of the MLP conferences we attended on that basis. Now that it's come off from that level, it's understandable a lot of people are losing patience. But you're still getting a 6% plus yield in a company that's basically self-funding robust growth of midstream assets. And which distribution growth is low single digits now, it can certainly afford more than twice that. Maybe that's the move that will send EPD over 30. But in any case, this is one to stick with.

Herm

4:16

What is your current recommendation for MOR and WPX.

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