JotCast | Energy & Income Advisor Live Chat June 2020

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Energy & Income Advisor Live Chat June 2020

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5:05

Slow to the draw on Fti, Terp, ugi and vet. Any worth keeping?

Roger Conrad

5:05

We recommended selling TechnipFMC some time ago, when we took a more cautious view of energy services companies in general. That's still our view, though we are staying with Schlumberger Ltd (NYSE: SLB) as the sector's best in class name as a buy. Terraform Power is still on track to be acquired by sponsor Brookfield Renewable Partners by the end of Q3, with a shareholder vote scheduled for July 29. Our current advice in Conrad's Utility Investor is to hold until the deal closes and receive 0.381 shares of BEP for every TERP currently held. The exchange ratio includes a small dividend increase.

UGI is a low cost fuels distributor attached to a utility and a potential takeover target as well. It's trading at a discounted price and also rated a buy in CUI. And finally, Vermilion is tracked in our Canada and Australia coverage universe as a hold--the dividend elimination is painful but should provide the cash to sustain the business.

Note that we now update our coverage universes with every issue of EIA.

salvatore

5:13

Afternoon Gentlemen What are your thoughts on shlx Have this stock for a long time in at $23 . Is there dividend safe . Should i cost average , Thanks for all you do .

Roger Conrad

5:13

They did not increase the distribution payable in May, which was the first time since the IPO without an increase. I think that's a pretty good indication of management's desire to hold in more cash at an uncertain time for the business. But the rebound in US driving activity should mean the worst is over for the business, at least for now--management stated during the Q1 call that their business is about demand rather than supply. Also, the company relies on take or pay contracts to a large extent and Royal Dutch Shell--despite its ongoing challenges--is still a very good counterparty.

Despite management's clumsy commentary regarding looking at the dividend quarter by quarter. we view the odds of a cut as low because of the low risk business model and strong balance sheet, as well as a low CAPEX growth strategy. Next earnings are the end of July and the next dividend declaration is due about the same time. But it's still a buy up to 22 at this time.

Ron

5:14

Still holding on to SCO?

Roger Conrad

5:14

We sold half our position in the model portfolio but are staying with the rest for now.

Frank

5:17

Your thoughts on NTB, please

Elliott Gue

5:17

I am not sure which company you're referring to? NTB looks like bank to me? If so, we do cover the banks in EIA sister publication Deep Dive Investing and our view is that you need to be very selective as some banks face pressure from low rates and/or regional loan book exposure while others are more advantaged.

Elliott Gue

5:20

I also wanted to make an additional note to all readers on the chat. A few months back we opened up a lifetime subscription offer for Energy & Income Advisor -- basically you pay a one-off fee and you're a member of the service for life with no renewal or maintenance fees. I've received a number of e-mails from readers asking if that's still open and the answer is that we've decided the reopen a limited number of new lifetime memberships to EIA again as part of a special July offer we're doing. We'll send out an e-mail with details shortly but, if you're interested, the cost will be $1,947 again with no maintenance fees and no gimmicks. You can call Sherry at 1-877-302-0749 between 9 Am and 5 PM Monday through Friday if you're interested.

Jack Almeleh

5:23

Looking at the last 3 year chart of the price of Okeon, it has had a gradual upward slope. Why has it been hit so hard with the pandemic? Is it because of current LNG consumption being down? If so, can we predict that it will bounce back to previous levels when the pandemic is over, in hopefully a year?

Roger Conrad

5:23

That's basically what happened for ONEOK in the year following its 2015 price crash. This decline took it down below that to its lowest point since early 2010--when it was arguably a much smaller and weaker company. But as then, this remains a stock people like to bet on with the cycle.

As I've said several times during this chat, the key for this company and this stock is what happens to its customers in the Bakken. Management seems to have prepared against the worst by raising equity and amending its credit pact as announced today--though an alternative explanation is they're preparing to fully fund CAPEX for projects it delayed this spring due to energy sector uncertainty.

Again, I think we have to see what they announce for earnings and dividends in July. And there is some uncertainty with issues that are beyond their control--mainly what happens in the Bakken. But if they can show resilience now as a company, I think the stock will produce some pretty big gains the next 12-18 months.

Roger Conrad

5:56

Q. Hi. If Biden were to win the White House, and there would be a Democratic sweep of both houses of Congress, how would that change your stock recommendations? He has spoken of having all electric cars by 2030, and building 500,000 charging stations. He would need natural gas to create that electricity. But that wouldn't necessarily stop him from limiting fracking, which he has expressed an interest in doing. Thanks—Jack A.

A. From an investment point of view, we’ve found it to be pretty much a waste of time to try to forecast election results. And that also goes for predicting what politicians will do if they are elected.

We agree there are some proposals out there that if adopted fully by government might cause us to rethink some of our picks. But if the last four years have proved nothing, it’s that our system requires compromise to get anything done.

It’s reasonable to assume a Biden White House and Democratic Congress would pass tax credits for wind and solar, batteries and EVs, and speed regulatory approval for offshore wind projects. And they’d at least slow permitting of new pipelines and oil and gas drilling.

But it’s also possible that if the country’s political temperature cooled a bit, there would be less funding for the court challenges that have largely brought new energy projects to a standstill the past couple years. And we could also see more people talking to each other to reach agreements that make sense, rather than just talking to score points.

In any case, energy stocks right now are selling at low valuations that basically price in the worst case on multiple fronts. We’re not talking about a sector that’s priced anywhere close to perfection where a less than ideal election result can do serious damage. And that means we can afford to be patient with best in class companies to see how things actually shake out.

6:16

Q. Dear Folks, I think the following situation might apply to many of your long-time subscribers. Let's say that someone, before the oil crash and Covid 19, purchased Occidental Petroleum (NYSE: OXY) in increments (as you often advise) below your recommended buy-under price to establish a full position that was reasonably weighted in one's portfolio. At that time, the entry prices seemed very fine indeed. Several months later, that very fine position is deeply in the red -- quite a bit above your present buy-under price of $45. I know you are adverse to "doubling down." But in this case, might it make sense to double down to get the overall cost basis below your present buy-under price.? Thank you. Jeffrey H.

A. We haven’t given up on OXY yet. The company’s acquisition of Anadarko last August has been perhaps one of the most criticized transactions in history for price, timing and the amount of debt taken on. But that doesn’t change the fact that the deal created a giant with some of the most valuable

6:17

oil drilling acreage in the world. And if this company can weather the current low price environment with its productive power intact, earnings and share price are headed a lot higher the next few years.

Q2 results to be announced during the end of July/early August time frame are not going to be pretty by all indications, with management warning of up to $9 billion in asset writedowns. And the possibility of transforming asset sales to cut debt appears to have waned as well.

But that said, the company showed its ability to refinance debt last week—selling $2 billion of high yield bonds in an offering that was oversubscribed by 50% with $3 billion in orders. That enabled the company to buy back $2 billion in debt maturing in 2021 and 2022, dramatically reducing near term refinancing risk. And it demonstrated OXY still has access to capital markets on reasonable terms, despite having its credit rating cut to junk this spring.

We think that’s a very good sign for a stock still trading under a cloud of bearish sentiment: 3 buys, 15 holds and 8 sells among investment banks/research houses tracked by Bloomberg Intelligence. The level of insider buying when shares have traded under $20 is also encouraging.

That said, we’re happy with the weighting Occidental now has in the model Portfolio—which for those unaware tells you how much as well as what to buy.

6:18

Well that's all we have in the queue at this time, as well as what we received via email prior to the chat. Before I close, I want to repeat a message from Elliott a little earlier in the chat concerning our lifetime subscription offer:

6:19

"A few months back we opened up a lifetime subscription offer for Energy & Income Advisor -- basically you pay a one-off fee and you're a member of the service for life with no renewal or maintenance fees. I've received a number of e-mails from readers asking if that's still open and the answer is that we've decided the reopen a limited number of new lifetime memberships to EIA again as part of a special July offer we're doing. We'll send out an e-mail with details shortly but, if you're interested, the cost will be $1,947 again with no maintenance fees and no gimmicks. You can call Sherry at 1-877-302-0749 between 9 Am and 5 PM Monday through Friday if you're interested."

6:20

Thanks again everyone for participating today. If for some reason you feel your question wasn't answered sufficiently, please feel free to write us at service@capitalisttimes.com

6:21

From all of us at Energy and Income Advisor, here's wishing you and yours a safe and Happy Fourth of July!

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