JotCast | January 2025 Capitalist Times Live Chat | 1/30/2025

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January 2025 Capitalist Times Live Chat

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Susan P.

2:17

Finally, my minimal understanding of LNG suggests storage and shipping requires cool/cold temps. Assuming increased LNG volume, are there any companies that would benefit more thanks to a cold temperate storage and shipping capability? I noticed recently that cold-storage REIT, Americold, announced a new import-export hub for Port Saint John. Their focus isn't LNG but, wondering which energy company--or potentially a REIT--might benefit.

Appreciatively, S

Roger Conrad

2:17

LNG export facilities are pretty technologically advanced machines. They cost billions and take years to build, which is a pretty substantial barrier to entry. I haven't looked at Americold for a while. But companies like Cheniere Energy Partners and Sempra Energy have a huge presence in the business in the US--they contract before they build, which means the pace of development is steady rather than lightening quick. But that's what builds the huge, reliable cash flows and dividends. As for smaller players like New Fortress, they're consistently under financial strain--NFE has suspended its dividend indefinitely to hold in cash and its share price has been extremely volatile. I would stick with the larger players.

Mack P.

2:22

Hi Sherry and all. I'm sure there will be many questions on NEP / XPLR in the live chat tomorrow. Here's mine:

With NEP turned into XPLR and the dividend gone to zero, what now? Is this a set-up for NEE to buy in the LP at a much lower price? Or is this a prelude to a sale of XPLR which is much more affordable with the drop in price? Is there any point to holding XPLR shares? I don't see any hope for a recovery for a long, long time. With the asset sales expected to close later this year, what will be left of the company? Or am I missing something.

Thanks.

Roger Conrad

2:22

Hi Mack. I've posted a great deal of analysis on NEP/XPLR already in this chat. I think the constant here with this company is it generates very steady cash flow from long-term contracted facilities. They basically got caught out trying to grow too fast when interest rates rose and equity costs skyrocketed. This plan is designed to pay off the CEPFs--and as I wrote above I think this stock isn't likely to go anywhere until they make considerable progress doing that. At 30 cents per dollar of very steady and rising book value and now sheltered from capital markets, I think the stock will eventually go higher. And I plan to be patient when it comes to a selling price.

Barry J.

2:28

Hi Roger:

No doubt people will be emailing you about the NEP debacle.

And perhaps you will have addressed the breadth of my question before this email gets to you. But perhaps you can give us an overview to these questions – my questions simply are:

How did NEP get to this point?”
Could you explain the effect of CEG’s on their company?
Why they took them out (the CEG’s) and how does a strong company like NEP have their stock fall from the low 80’s three years ago to what it is now?

Thanks.

Roger Conrad

2:28

Hi Barry. Yeah, I would suggest anyone with questions on the NEP read what I've already said in the chat--and in the alerts we sent the last couple days. They basically got here because they found themselves in a position where they couldn't refinance the CEPFs--convertible equity preferred financing--at a rate that wouldn't cause extreme dilution or wreck the balance sheet. And if it didn't pay off the CEPFs, the company would forfeit the assets to the owner of the CEPF.

You can blame a lot of what happened on interest rates tightening up--and the company at the same time responding to a robust market for new projects by trying to grow rapidly. They've gone to ground for now. And we'll see how the works.

The kind of volatility that takes Constellation from 20 to 300 plus and NEP from 80 to 10 is pretty much here to stay.

Alan R.

2:31

Elliott,

According to the US Energy Information Administration, demand for energy in the US peaked in 2005 and has basically been flat since then (I have attached their charts for your review) while at the same time production has risen. How does this balance with your outlook on energy over the next 3-5 years?

Thanks for all of your team’s excellent work.

Elliott Gue

2:31

Two things.

First, US primary energy demand has basically been at a plateau for years across all sources; however, underneath that you have some major pockets of growth. For example, peak coal consumption in the mid 2000's was just shy of 23 quads (quadrillion BTUs) and was about 8 quads in 2023. However, you have gas consumption up 50% (more than 11 quads) over that time to 33.7 quads. With electricity demand growing at the fastest pace since the 50's and 60's I'd expect has to continue to gain share of the US energy pie.

Second, commodity markets are global in nature. The US (really all developed countries) isn't the source of growth in demand for energy -- it's emerging markets like China and even more so India that have led to growth in global primary energy demand. I'd expect that to continue or even accelerate as it has in India in recent years even as the US continues to see modest growth in overall demand largely driven by improved efficiency over time.

The biggest change for the US energy

Elliott Gue

2:31

market (in isolation) over the past 20 years or so isn't growth in total energy consumption but the source of that energy shifting from heavy on imports to more of a domestic story -- i.e the US has consumed in that region of 19 to 20 million bbl/day of crude/liquids for many, many years now; yet in 2005, the US only produced less than approx. 5 million bbl/day and today that's approx. 13 million. Obviously the shift for gas has been even more dramatic as in 2005 US was expected to be a fast-growing importer vs. the world's largest exporter today. This is an advantage not possessed by most other developed countries but it also means that US energy producers are also benefiting from exports, not just domestic demand.

Rick P.

2:36

Roger, two questions:

1. Why do you think T has rallied nicely recently but VZ has lagged?
2. Do you line Northland Power at this price

Thank you.

Roger Conrad

2:36

I don't think relative performance between AT&T and VZ really has anything to do with business results. As I pointed out in this week's and last week's alerts, earnings and guidance were strong and on target with what management has said previously. Rather, I think it has to do with where AT&T was--with more than a few prominent Wall Street analysts predicting its demise. And now we see the company taking market share from the remaining smaller US telecoms, just as VZ and TMUS have been. I basically have a buy recommendation on all three for the long-term--though with majority owner DTEGY the way to own high priced TMUS. They're taking market share in a fast growing industry and now have what should be 4 years of favorable regulation on the federal level.

The big issue for Northland is if it can finish building the offshore wind facilities in Taiwan and Poland--and finance the work economically. We'll see Feb 26 how it's doing. I think it's a value assuming investment is on track for the more aggressive.

Ben F.

2:39

Good morning.

Thoughts on Franco Nevada corp?

Roger Conrad

2:39

I think it's a solid bet on precious metals--quite an impressive growth story since it first caught my attention in the 80s. I have preferred Newmont Mining for the higher dividend. But it's good to have some gold in your portfolio.

Jack A.

2:44

Hi Roger:

AES seems to just go lower.... You had mentioned previously that one of the reasons it has fallen so much is due to its removal from the utility index... But the question is, why was it removed and replaced in the utility index?

Thanks

Roger Conrad

2:44

Hi Jack. The official explanation was Dow Jones wanted a stock (Vistra) that was more representative of the independent power generation space. But you have to understand that indexes are always under pressure from issuers of related ETFs to deliver performance--lest the ETFs shrink and vanish as so many do. In this case, they dumped an underperformer (AES) for an outperformer (VST). I have done some analysis about the relative performance of stocks that go in and out of indexes--and in the long-run the dumped tend to outperform. But again ETFs and indexes work on a different time table than individual investors.

As for why AES is down the past year, there's a lot of worry that developing nations will weaken where it's invested and tax credits will go away. I think there's less appreciation of how this company has protected itself. But ultimately, what they say Feb 28 will shape my strategy on this stock going forward.

David H.

2:51

Hello,
Love what you two are doing! Was a Utility Forecaster subscriber until you guys left. Thank you Elliot for doing the In It To Win It interview because that is when I found out you guys were still in business.

My questions are for Elliot:
1. For CT Trader, can you tell us what your philosophy is on these trades, what kind of gain you are expecting, and what a typical holding period might be?

2. For Energy & Income, can you please update Expand Energy’s symbol go EXE?

Thanks

Elliott Gue

2:51

Thanks for listening -- we're delighted to hear that you found us again. I enjoyed doing the In It to Win It podcast.

CT Trader, the general philosophy is trading stocks and ETFs based on the research we do for longer-term services. For example, we don't recommend oil ETFs in Energy & Income Advisor, but I/we usually have an opinion on oil prices, so in CT Trader we trade ETFs like USO and UCO on a shorter term basis. In EIA we might recommend a high-quality larger producer like EXE as a long-term holding, in CT Trader we recommended smaller and more volatile SWN, which was acquired by EXE last year. The product isn't particularly short-term -- the average holding period is a few months. If you're interested in somewhat shorter term trades, our "Elliott's Income Options" service uses options to trade stocks and ETFs over shorter time frames. The average holding period there is about 4 to 5 weeks. Historically, I've done a lot of spread trades in Income Options; lately, I've recommended a lot of

Elliott Gue

2:51

unhedged put and call options on stocks. This allows us to buy significant leverage to stocks and ETF with a small capital commitment. If when, they move in our favor, I generally roll those positions to reduce (or eliminate) downside risk while maintaining upside leverage to the underlying trend. Recently, for example, we've been in trades as diverse as USO (oil), LRCX (semiconductor capital equipment) and BX (financial). as for #2 -- thanks for pointing that out. YEs, I will make sure the symbol is changed from "CHK" to "EXE" in the issue coming out over the next few days. Can't promise I won't call it "Chesapeake" on podcasts and interviews based solely on force of habit! I still struggle with Schlumberger's name change to SLB Inc.

John C.

2:52

Comment on dominion Wind farm project due to changes in wind policy and permitting

Are there particular companies at increased risk due to changes in U.S. energy policy?
Vice versa...companies with better prospects due to energy policy.

thanks

Roger Conrad

2:52

Hi John

I addressed this question at length earlier in the chat. But the long and short of it is CWOW is fully permitted and supported by the Republican Virginia governor and AG. It's also coming in at an LCOE cost comparable to the least cost solar and natural gas generation. And it's needed to fuel data centers. Not to say the Trump Administration won't come after it. And I don't think they'll try to permit the lands they bought very cheap last year. I also look forward to Dominion's comments on Feb 12 and any red flags that may come up there. But at this point, the main 2.6 GW project is on time and budget to start producing energy in 2026.

Iberdrola also has fully permitted projects as does Orsted A/S. And at this point, it looks like those go ahead as well.

I will say that a government challenge would really set a new and very dangerous precedent for all energy projects--and if offshore wind is the victim this time, you can bet oil and gas will be when political control inevitably changes again.

Randall H.

2:54

Any thoughts on Venture Global since its IPO this week?

Roger Conrad

2:54

Hi Randall.
We're looking at it. The IPO obviously didn't go as hoped--I think the Deepseek selling wave in natural gas certainly did not help. But this is a substantial company and there's likely to be a lot of business going forward. Maybe one we add to the coverage universe.

Mr. G

2:57

What to do with NextEra (NEO)(XPLR)? Sell now and buy back in 31 days? Buy more now and sell the old holdings in 31 days? Get out of it completely?

Roger Conrad

2:57

My view is to stay with it until we see what the price does after income investors bail and are replaced by value seekers.

It's obviously not paying a dividend--and won't for the next 2-3 years most likely when the CEPFs are dealt with. So anyone who needs a yield should be looking to exit. But this company does have cash generating assets and sells for less than 0.3 times book value--I don't think it's going anywhere. It's just going to take a long time to come back.

Lou E.

3:00

Hi, Sherry,

Hope all is well!

Please ask Roger to comment specifically on Vertiv (VRT). I'm sure there will be a lot of activity regarding possible changes in electricity needs in general as a result of recent AI news, but I'd appreciate his thoughts on this one stock. I can't participate "live" today.

Thanks!

Roger Conrad

3:00

it's frankly not one I've looked at to date--a little far afield from the essential services coverage universe. They obviously do a lot in the data center space and I'll be interested to see what they report on Feb 12. That said, it's also double its price of a year ago and it's quite expensive on a valuation basis at 34.4X expected next 12 months profits. I think you can expect a lot of volatility at a minimum.

JT

3:07

Gold and silver stocks have significantly under performed the metals itself. Is it because the smart and big money players don’t believe that the metal prices are sustainable or that the businesses have high cost structures that make them worth less?

Elliott Gue

3:07

I think it's more the latter than the former. Look at the royalty and streaming names -- my favourite has been Wheaton Precious Metals (WPM) but Osisko (OR) is another name that pops to mind. These companies benefit from rising gold/silver prices; however, they're not exposed to the mine cost structure issue (at least not directly). And look at WPM up 35% over the past year, OR +30% , more or less in line with gold over a similar time frame. One aspect that I do find interesting is that typically ion the final innings of a precious metals bull market, silver goes crazy on the upside. You tend to see what technicians might call a blow-off top.

Elliott Gue

3:07

We're seeing the opposite lately. And that suggests to me the precious metals bull market is closer to the middle innings than the final innings of this rally.

Dan N

3:07

Good morning, and thanks for hosting the live chats.

I know there will be lots of NEP questions after the dividend elimination and meltdown (shares trading near 10 today), so apologies if these have been asked already:

1. How much cash flow per share are we talking about in NEP? At a share price of 10, are we down to a price/cash flow ratio of ~ 2.5? While I feel quite burned by the dividend suspension, it's hard not to see value in assets there. How does it compare to the price/cash flow of AES, BEP? (I've been loading up on AES and BEP at current levels)

Roger Conrad

3:07

As I've said in this chat as well as the Alerts I would encourage everyone to read, NEP/XPLR Infrastructure is obviously very low priced relative to the value of its assets--which has been consistently rising even with the sales of pipeline assets.

This is ultimately still a funding vehicle for NEE long-term. But restoring it means paying off the CEPFs. If you're looking for a value point, they've set a free cash flow $600 to $700 mil before growth investments starting in 2026 and running several years. That means market cap is just 1.52 times annual free cash flow.

As I've said in CUI, anyone buying these stocks needs to be patient and prepared for more volatility and even selling. And we're going to need to watch business results. But this is a lot of value for established companies with real earnings.

Dan N

3:10

2. Given that cash flows at NEP are contracted for long periods, and the new company plan essentially hoards all that cash flow for CEPF buyouts and growth projects without needing to issue equity and far reduced financing... is there any real doubt they can't pull off the plan? If the cash appears on schedule (per contracts), is this plan conservative no matter what happens with (for example) interest rates?

Roger Conrad

3:10

Hi Dan. Even the best laid plans can come up against unexpected hurdles. But yeah I think paying no dividend definitely derisks the plan to pay down the CEPFs--no need to go to a hostile equity market and as noted in the alert, they have interest rate hedges in place for the next few years' refinancing.

I'm going to continue tracking this stock. But again, without the dividend NEP/XPLR is of limited appeal for income investors.

Dan N

3:14

3. What do you think of the announced NEP co-located batteries plan? I admit my first thought is I like the plan for leveraging the key first-mover advantage for NEP's renewables fleet, that it's all already connected to the grid and co-located batteries shouldn't be hampered by the typical bottleneck of the connection queue.

(More questions coming in email part 2... Thanks

Roger Conrad

3:14

Yes I think you're right on all points. The only question would be if they can contract the increased energy flow from the colocated batteries. But with the contracts they've signed the past year, demand certainly seems pretty robust. NextEra's transmission access really is an extremely valuable asset, no matter what they're building.

JT

3:16

Hi Elliott, Can I get your thoughts on SLB earnings and analysis of stock price reaction?

Elliott Gue

3:16

The stock actually reacted positively to their release, biggest post-earnings pop in several quarters. The fear on the Street, which has been the main headwind for SLB over the past year, is that international exploration and development spending is peaking. I think what we're seeing is more of a "plateau" than a true peak -- growth in some markets like UAE, Brazil, Guyana vs. declining spending in others like Saudi. Since SLB is so well-diversified by both product line and geography my view has been that they'll manage through this environment quite well just by following the growth. Longer term, my thesis has been, and remains, that there will be a second wind to the cycle as it becomes clear oil/gas markets are not structurally oversupplied. I still think the key to this will be the US -- US oil production has actually flatlined and I think this is the beginning of a long plateau for US crude oil output. That's driven by many things including that GORs are rising (gas-to-oil ratios) in many key US shale

Elliott Gue

3:16

fields like the Delaware and Midland Basins of the Permian. Also, mid $70's oil prices are not high enough to incent a significant rise in US CAPEX directly at drilling shale. So, without 500,000+/- bbl/day US production growth, it won't take long for global demand growth to eat into Saudi/UAE, etc. spare capacity. We need a new wave of spending internationally and that'll start to become more clear as time goes on and US production forecasts from the likes of IEA keep proving inaccurate.

Bob D.

3:18

One way to interpret the NEE/XPLR action is that higher interest rates have broken the yieldco model. Do you think that is true? Does it mean companies like CWEN are next?

Thanks, for the call. I cannot attend in person today, so I have to submit this up front.

Roger Conrad

3:18

Clearway as the only other publicly traded US yieldco left really appears to be in a different place than NEP/XPLR. Mainly, they just never were that aggressive on financing. I think that was partly because early on they took a hit from the Pacific G&E bankruptcy that forced them to rely on their own resources. And despite Blackrock and TotalEnergies as the ultimate owners of the GP, they've held to the self-funding model. Dividend growth has been 5-8% instead of NEP's 15%. But it's left them less exposed to rate volatility.

Earnings are Feb 24. But the company appears to be in good shape now.

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