JotCast | Energy & Income Advisor Live Chat May 2019 | 5/30/2019

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Energy & Income Advisor Live Chat May 2019

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Elliott Gue

2:36

Your wlecome, RBB. Also, if you want to subscribe to the YouTube Channel there (which is free) I am trying to post a new video there once a week or so.

McMack

2:39

What happened to the Focus List? It's not in the latest issue. That's where I found OMP which you were pretty high on a few months back. Confusing. Is OMP a sell now? Thanks

Roger Conrad

2:39

We've replaced the Focus List with a "High Yield Energy" list, which we thought would be a more valuable feature. For one thing, the Focus List had become basically duplicative to the Actively Managed Portfolio, which is what we advise readers follow. Oasis Midstream is still tracked in our MLP Ratings coverage universe on the EIA website and is a candidate for the High Yield Energy List. Sorry for any confusion.

Andrew

2:43

Do you feel PEGI and TERP have gotten ahead of their fundamentals? The rally in PEGI seems to minimize the risk of their near 100% payout and TERP's yield is lower than BEP, which owns 65%, has a lower payout, better visible growth and higher div growth plans. Both seemed to have rallied much harder than better names like BEP, AY, and NEP.

Roger Conrad

2:43

The main reason these yieldcos have rallied this year is they were left for dead by investors last year. They posted solid results and as a result buyers are again shopping them for yield. That said, PEGI is trading above our buy target of 22 while TERP is above our target of 13--so we're only advising buying on dips. Neither has approached profit taking territory, however, on our valuation-focused model in Conrad's Utility Investor.

Roger Conrad

2:43

I also don't see any particular danger to their dividends at this time.

Arnold

2:46

Haliburton hit a 52 week low today. Do you think there's any chance it could drop below $20?

Elliott Gue

2:46

I don't believe such a move would be justified on the fundamentals but markets can overshoot (both on the upside and downside) in the short run based on sentiment alone. I look at the charts to gauge sentiment and I think you have a fair amount of technical support for HAL in the $21 area. HAL is cheap at 13 times next 12 months earnings and it's likely to generate free cash flow of over $1.15 bn in 2019 and over 1.5 billion in 2020. Company is paying down debt (projected to reach about 1.6 times EBITDA by year-end 2020), offers a 3% plus yield.

Mary N.

2:47

Could you tell me why you sold Keyera? Thanks

Roger Conrad

2:47

Mary I believe i answered the question earlier in this chat. But again the primary reason was it was tax selling season and we had a loss from our entry point. it's been very hard times in the Canadian energy patch. This company has consistently been able to develop assets that have maintained robust throughput and I think the CAD1.3 bil natural gas liquids pipeline greenlighted this month will be no exception. Readers who didn't take our sell rec and are patient can still hold Keyera, which we still track in our International Coverage Universe on the EIA website.

Alok

2:52

Is WES a good holding at this point below 30?

Roger Conrad

2:52

We actually continue to rate it a buy below 35 in our MLP Ratings coverage universe on the EIA website. We think distribution growth is likely to slow to mid-single digits the next couple years, but that's still attractive off the current yield of 8% plus. There are no IDRs after the simplification merger either. The big question is what happens when Occidental becomes the majority owner with Anadarko's current 55.45% share. I think the most likely scenario is a sale of that interest, given OXY's post-merger balance sheet needs. But there's still a great need for that infrastructure to grow.

Roger Conrad

2:53

WES is also a good candidate for the High Yield Energy list, once there's more clarity on OXY's intentions.

Alok

2:54

IN the past you have recommended staying away from Core Labs. This used to be a top notch service company for Production Enhancement, Reservoir Characterization, etc; is now trading below 50, at nearly a 10 year low. 1) Your perspective at this juncture and 2) is the current Divi yield at 4.5% pretty secure??

Elliott Gue

2:54

We actually do like CLB. I think the key for them is that we need to see more evidence of a turnaround in the deepwater business globally. Right now, all the services companies -- HAL, SLB and CLB -- are pretty much trading off of sentiment rather than fundamentals. Ultimately we believe that will change. Just from a big picture perspective, outside of North American shale, spending on new oil production capacity (capital spending on drilling, exploration, etc) has collapsed since 2014 and has yet to recover meaningfully. The market right now is a little bit complacent -- the view is that it doesn't matter what happens globally because US shale can meet all of the world's supply needs. That's naïve to say the least as there are already issues in terms of maintaining shale production growth (companies are focused on cash flow not growth, parent/child well interference, infrastructure constraints, labor cost inflation, etc). I think the Saudis know this, which is why they're willing to restrict supply near term

Herm

3:00

I sold APS as recommended. After our last live chat was very positive on oil I put some money back to work in OXY, MRO and WPX. I think these stocks are still very good buys but so far the timing was not good. Your thoughts on these stocks now. Also what do you think about ICAN's involvement in OXY.

Elliott Gue

3:00

I touched on the energy stock performance issue in answering a previous question in this chat. The bottom line is that while the stocks aren't performing well right now, fundamentally these companies are generating some solid numbers and real free cash flows. Unlike a couple of years ago, the names we follow are all remaining disciplined -- they're not boosting their rig counts or capital spending even though oil prices are still up sharply in 2019 and above their budgeted plans at the end of last year. This is REAL cash in the bank, which they can use to buy back stock, pay dividends and pay down debt. Eventually I think they will be rewarded for this in the form of higher share prices. As for OXY -- I think this is classic Icahn. I actually don't think they overpaid for APC though it was fairly predictable that the market would HATE the deal given sentiment in the sector. Net-Net, I think Icahn involvement is a small positive as it might force OXY to be more proactive in selling assets, which would probably

Ed

3:01

Do you advise selling BPL now or wait until the IFM takeover is completed. Please explain your reasoning. Thanks.

Roger Conrad

3:01

Please see my answer to Arnold's question. I think if there hadn't been a takeover offer for BPL, the unit price would have dropped toward $30 and possibly lower following the weak Q1 results, and subsequent announcements that Moody's and Fitch were considering cuts to junk as is S&P. Our advice is still to sell now--the safest way to do that is a market order. And as I hinted in answering Arnold, if this deal fails, BPL is not going to hold $40.

Eric

3:02

Their chart looks terrible but the numbers look good, do you guys still feel good about this one? I don’t own any yet but I’m very tempted

Elliott Gue

3:02

Which company are you asking about? The stock you're referencing appears to have been cut off the question.

Alok

3:07

If I were looking to add more major oils primarily for income, do you have a preference amongst: BP, RDS.B, CVX, TOT?

Elliott Gue

3:07

Shell is a name we've mentioned positively recently. Great yield and perhaps the most attractive free cash flow story of the majors over the next few years. Basically, they're benefiting from investments made in the past that are now bearing fruit and they have the potential to do smaller, high return projects is markets like deepwater.

Pablo

3:09

Would you rate CXO as a takeover candidate since their stock has sold off way below your buy price and their acreage is rated so highly?

Elliott Gue

3:09

It's certainly possible. CVX actually wants to make a deal there (now that they've been spurned by APC) and Shell is often considered a company interested in US shale acreage. Even without a deal, however, CXO is fundamentally attractive and can continue to generate significant free cash flow even with oil around $50/bbl. No one cares now, but eventually this will attract investors to the name in my view (at least historically that's been the case).

Pablo

3:26

SLB seems to have a pretty generous dividend for an oil services company. How secure do you think the dividend is at 5.5%?

Elliott Gue

3:26

SLB has paid the same dividend for years now but since the stock has fallen sharply, the yield is elevated. Management has signaled commitment to the dividend and they have the earnings to support it so I do think it's safe. We'd probably need to see some signs of a turn in global spending for some time before they'd consider raising the payout. I also suspect they'd first use any excess free cash flow to buy back stock rather than raising the payout.

Pablo

3:29

Could you please comment on WMB and OKE.

Roger Conrad

3:29

They're both in good shape now and we track them in our MLP Ratings table as major midstream companies on the EIA website. ONEOK had a very strong Q1 with 1.43X distribution coverage and big boosts in throughput as it builds infrastructure in central Oklahoma, the Bakken and west Texas. Williams is still bringing new nat gas pipelines on stream and had a 1.7 times coverage ratio in Q1. OKE is a buy under 65, WMB to 28.

Pablo

3:30

I know you are recommending HAL and SLB but how do you rate BHGE and NOV in comparison?

Elliott Gue

3:30

HAL/SLB are the largest and are likely to be the first two names institutional money gravitates to when sentiment turns. NOV has more deepwater exposure -- I feel there's plenty of deepwater exposure in SLB, which I view as a better company overall.

Herm

3:31

I will miss the Focus List since it represented you most current recommendations although most of the stocks were covered in the Actively Managed Portfolio. Would you consider assigning a priority to the Active Portfolio as to which shares you would buy first.

Roger Conrad

3:31

This is still a work in progress and we appreciate the suggestion.

Hans

3:32

Elliott Excellent Video, just watched the Adjustment factor will watch the other one later Thanks

Elliott Gue

3:32

Thanks for saying that. I am trying to be a little bit more regular in terms of creating videos for that YouTube channel. Plus I acquired some lights so it doesn't look like I'm in a cave hopefully. If you want notifications when new videos are posted (not always on energy but a wider array of topics) then you can subscribe to the channel.

Michael L

3:36

Hi Roger, thanks for the answer on the Consolidated Comm bonds of 10/22. To paraphrase your response, you are comfortable with them at this point, but they bear close scrutiny. Correct? Sorry just need to be clear in my mind.

Roger Conrad

3:36

Exactly. I think at the current price they're a pretty good value proposition for the risk. But there has been a noticeable acceleration in revenue declines at smaller wireline telecoms the past few quarters that's made me a good bit more cautious on the whole group's long-term outlook. The CUI bond portfolio also had the CenturyLink bonds, for example. Now they're trading at a premium and the 4.89% yield to maturity. I think well understates the risk from falling revenue and we've recommended selling.

Eric

3:43

Thanks for holding these chats! What do you think of MPLX after the acquisition of Andeavor? Is it more, less or equally attractive vs. before the acquisition? The stock seems to have come down since the announcement of the acquisition, but other midstream stocks have come down too.

Roger Conrad

3:43

It's definitely more attractive after the merger--which was on terms that I think benefitted it over shareholders of both Andeavor and the general partner Marathon Petroleum. There remains the possibility that Marathon will buy the 36.46% of MPLX it doesn't already own, given that it's primarily a refiner. but MPLX is in good shape after reporting a solid Q1 with 1.41 times distribution coverage. it's not uncommon for acquirers' stocks to decline when deals are announced--but this one looks accretive for MPLX--also credit ratings upgraded.

Mack

3:47

DKL has a high div but didn't make it onto you new high yield list. Do you think the DKL div is safe? Thanks.

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