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January 2025 Capitalist Times Live Chat
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Dan E
3:22
Hi Roger, there is continued weakness in EIX share price, is there any new news about their potential liability with the Southern California fires?  Would this be a good time to purchase?  Thanks for your thoughts.
AvatarRoger Conrad
3:22
Nothing really new there to report. Edison was not a part of the worst fire Palisades, which was in the Los Angeles Dept of Water and Power territory. They've said there's no evidence of involvement lighting the Eaton Fire, which was in their service territory. But they are being sued nonetheless. They do have liability in the Hurst Fire, but that one was contained. I think Edison is at a good entry point. And remember that the California Wildfire Fund and related legislation limits ultimate risk. But be prepared for volatility--and while actual liability appears very low now, it's possible we'll learn something that indicates more.
Dan N.
3:28
Hi again - now some questions not so focused on NEP...

4. Thoughts on the Eversource water division sale?

5. Seeing AES shares trading at the fwd P/E close to 5, here's a quick intellectual exercise: what's to stop AES from pulling a MDU-style move and breaking up the company? Would separating the regulated and unregulated operations unlock a lot of value if the utilities were valued closer to other electric ute stocks?
AvatarRoger Conrad
3:28
I like EverSource's sale of its water operations--the price seems to be more than what management was guiding to. And combined with the sale of the offshore wind projects ownership, it pretty much restores the balance sheet. The company has also reiterated its 5-7% annual earnings growth target and increased the dividend for 2025 by 5.3%. Looks like everything is on track here, despite the tough Connecticut regulatory environment.

AES has sold a lot of assets the past few years, streamlining the portfolio and cutting debt. So it's tough to know what exactly they would spin off and what they'd keep. Earnings are Feb 28--but I look for management to affirm guidance for earnings and dividend growth. And I would be surprised if we saw an MDU-style move, as that company's businesses were very different from each other.
Dan N.
3:32
6. Even after the DeepSeek AI meltdown that hit independent power producers hard, the gulf between companies in and out of favor just seems crazy to me. VST and NRG versus AES, BEP, NPIFF... Is the market just expressing a very blatant source bias, favoring non-renewables? From the coldest source-agnostic investing viewpoint, I would have thought juice is juice. Is there something I'm missing?

Given that PPA rates for renewables are still rising (particularly for wind, https://www.utilitydive.com/news/ppa-prices-continue-to-rise-amid-trum...), I don't see that the secular and market trends are signaling that renewables are suddenly worth less... regardless of what rhetoric the new administration throws around.
AvatarRoger Conrad
3:32
Yes, I think the secular trends are very much in play. And that's why I view so many of these stocks as buys rather than sells, despite recent declines.

I think the way you have to understand the stock market is more money is passively invested in giant funds than actively managed. That means fewer decision makers than ever to move markets and stocks--and it means hedge funds and other momentum players have enormous leverage.

I think the way for long-term minded investors to play this is to take profits in a disciplined way when prices go to the moon--and accumulate reasonable and balanced positions in stocks of strong companies that have really come down.

And yeah, government policies are far less important shaping investment returns than the popular media make them out to be. Stocks like AES, BEP etc were huge winners during Trump 1 and big losers under Biden--for example.
Dan N.
3:37
7. Speaking of the new administration, no matter what anti-wind comments Trump makes, is there really much the administration can do outside of halting new offshore permitting? And given that wind is still a preferred renewable power source, is there any sense in which slowing new wind development could increase the value of wind assets already in operation?
AvatarRoger Conrad
3:37
My view is we need all of the above when it comes to energy sources--provided the projects make economic sense. And that's definitely been the case for wind--which was growing rapidly long before IRA tax credits, and in fact has tapered off a bit since they were passed.

As I said answering an earlier question in the chat, really all the Trump administration can do at this point against renewable energy is what the Biden administration did against oil and gas drilling--which was all about being on federal land. There's really little they can do against projects on private land--other than file lawsuits.

I think ultimately private land wind will be all the more valuable from the Trump ban--just as oil and gas was. Declaring war on any energy source restricts supply and pushes up prices.
Victor
3:41
Elliott, would you take some profits on names like MPLX, ET and EPD or do you see more upside potential? Also how do you feel about OXY,  it hasn't performed when compared with other names. Thanks.
AvatarElliott Gue
3:41
In our view some of the midstream names got a little carried away to the upside late last year and early this year. As we wrote back in December there was a fair bit of hype around themes like AI. What you tend to see these days is a lot of hot money chasing various "themes" and "narratives" in market, buying (or selling) baskets of stocks as a result. So, look at a name like ET, which we have as a buy under $18, and it shot higher from $17 the day after the election to near $21.50 early this year. Then, it crumbles to $19.50 based on the DeepSeek news, a big move for that name.  I think a lot of that volatility is driven by this hot "generalist" fund money chasing themes like AI. The reality is that the fundamentals for midstream names --and for the producers -- has a lot more to it than AI. In fact, I think AI really wasn't even close to the most important theme driving the group. And it's unclear what, if any, impact DeepSeek will have on electricity demand.  The effect on the stocks is magnified well
AvatarElliott Gue
3:41
beyond the fundamentals on both the upside and the downside. So, the only way we know  how to handle that is to stick to our buy target discipline -- for MPLX, ET and EPD our  buy under targets are $50, $33, and $18. We're not specifically recommending booking gains, but we'd definitely not recommend buying more unless they pull back under those targets. Of course, we'll continue to revise those targets as conditions change. Re: OXY, I think they're OK, but our favorites on the E&P side are the two gas-levered names EXE/EQT as well as some of the mixed producers like OVV/EOG. We see more upside catalysts for those names than OXY right now. OXY is more of a long-term value creation story.
Dan N.
3:44
8. BCE is still stuck in the doldrums, and while I tend to have long timelines and patience, I always need to question whether the market's implied assumptions about an investment make more sense than mine. I've seen different analysts give some wildly different estimates regarding BCE's cash flow. Any comment on how there can be such differences of perspective on cash flow? Also, not asking about dividend security per se, but how do you think BCE's price-to-cash flow looks compared to other telecoms? I'm happy I bought VZ shares near its bottom, which I did because of the cash flows. Does BCE compare favorably to VZ when it was particularly undervalued?
AvatarRoger Conrad
3:44
Dan, let's see what BCE comes out with for earnings and 2025 guidance a week from now (Feb 6). My feeling it's still the very high quality company it's always been and that the exit of PM Trudeau--even if the Liberals keep power--will boost the regulatory environment that's been very negative for these companies. I think BCE like VZ and T are value stocks that will eventually work through their challenges. BCE hasn't held in as much free cash flow after dividends paid as either T or VZ. But it does cover all of it.
Dan N.
3:48
9. Any thoughts on the shareholder proposition to end RIO's dual listing in Australia and UK? As an foreign investor, I hope RIO keeps the dual listing because of the UK dividend withholding policy (i.e. no withholding - much preferred for my tax-advantaged accounts).

Thanks and best regards
AvatarRoger Conrad
3:48
It really all comes back to what can save the company money with filings and compliance. BHP--Rio's biggest rival--still has an LSE listing as well as NYSE and ASX. But RIO is also pursuing a merger with Glencore. And apparently this won't be a "straight merger," so they might have decided fewer  jurisdiction mean easier approvals. Anyway, I do think it's a good time to look at resource companies, especially BHP.
Randy D
3:50
Thank you for posting all the information about NEP above.  Even considering that the stock won't pay a dividend for quite a while, is there a price that you would be willing to pay for it (a dream-buy price)?  Thanks
AvatarRoger Conrad
3:50
Hi Randy. It all comes down to if someone needs the income, in which case the advice would be to move onto something else. As for a Dream Price for value hunters who don't need dividends, I think we've reached it and then some at 30% of book value and market cap just 1.5X expected next few years free cash flow. I think that's why NextEra ultimately didn't seek a financial partner and is willing to be patient.
Alex M.
3:53
Hi Roger.  You currently rate CMCSA as a hold in your utility report card.  After their earnings release and associated price decline, what are your thoughts at this time?  Thanks.
AvatarRoger Conrad
3:53
HI Alex. My basic concern with Comcast Corp the past couple years has been broadband customers losses. They've masked them in reports by emphasizing wireless customer growth--which is essentially third party usage of Verizon's network and therefore lower margin. But that was a bad number they released for Q4. And though earnings were still up solidly thanks to better content. This still looks like a company that will see declining revenue and earnings the next few years from what have been its most steady businesses. I may take another look at the stock on a value basis on the Feb CUI. But at this point, I'm still rating it hold.
JT
3:53
If I want to invest in bonds, what type of bonds (treasury, investment grade corporates, or preferred) and duration are there the most value and best prospects for the future?
AvatarElliott Gue
3:53
Right now, in Smart Bonds I see a lot of value in fixed rate preferreds (we like the PFFD exchange-traded fund) which tends to benefit from both financials outperformance and a fading headwind from the rapid rise in rates we saw late last year and into the January 10th highs. In Treasuries, we have exposure to the long-term (long duration) Treasury bond market via the TLTW ETF -- this is basically a 20+ Year Treasury ETF that sells covered calls to generate additional income. It will benefit most from a flattish environment for Treasuries, which is generally what happened in the late 90s, the last time we had a soft landing. We also recommend an intermediate term investment grade corporate ETF in there. I-T corporates perform well when rates are rangebound as well. You have a bit less rate sensitivity and a good yield there, around 4%. We still like some of the variable/floating rate corners of the bond market' however, these generally have performed very well in the last few months, so I wouldn't call them a
AvatarElliott Gue
3:53
superb value here. Generally what we've seen is that long-term yields have been range bound between high 3% and high 4% range for most of the period since late 2022 (on the 10-year Treas.) Moves to the bottom of that range can be a good opportunity to buy some variable rate exposure. Moves to the top of that range often a good time to buy a bit more duration and fixed rate exposure. Right now, we're a lot closer to the top of that range than the bottom.
Alex M.
3:58
With the recent pullback in their share prices, do you see any of the smaller water utilities such as ARTNA, YORW, or SJW as potential takeover targets?  Thanks.
AvatarRoger Conrad
3:58
I still favor Essential Utilities (WTRG) in the water space. And I expect a strong Q4 result Feb 26. But the smaller ones certainly do get more interesting from a takeover standpoint the cheaper they go. What's really interesting is companies' business results have been consistently strong, even as share prices have dropped. That may have to do with interest rates--and the fact money market funds still yield around what these companies do. But unlike money funds, these companies raise earnings, dividends and share prices. I'll have more on water in the Feb CUI.
Victor
4:00
Hello Elliott, what is your opinion on COP? With the acquisition of MRO do you see a reversal to the upside as the stock has been trading sideways for months. Thanks.
AvatarElliott Gue
4:00
COP has been executing fairly well. Their last quarter was above expectations in terms of Permian production and they raised guidance for the full-year, which is a positive.  However, for lack of a better term, the COP story is a little bit boring -- I don't think the MRO deal is as transformational as, for example, EXE's acquisition of SWN. Not a bad deal, but COP is basically a long-term, very slow production growth story. Over time, that'll pay off as cash flows rise but I think there are just more immediate upside catalysts on the pure gas side in a name like EQT/EXE. Don't get me wrong -- I like boring sometimes, but if you're looking for a stock with short-term upside catalysts I think COP probably isn't it.
Frank
4:01
I was close to pulling the trigger on EIX just prior to the wildfires. Is there value here and at what price. I understand Calif has limited utilities liability but do you think that the dividend is secure?
AvatarRoger Conrad
4:01
Hi Frank. I think Edison right now is priced for a lot bad news on the wildfires that just doesn't appear likely at this time. And not only is liability limited under California's wildfire laws and insurance. But it's very hard to argue the company hasn't been all-in on wildfire prevention and protection--and that there are other potential sources for ignition.

Everyone looks at wildfires and expects another PG&E or Hawaiian Electric. But at this point, EIX' situation this year may be more akin to Xcel Energy's (NYSE: XEL) last year--where risk basically vanished as facts became known.
Victor
4:04
Hello Roger, thank you for your analysis on NEP. Unfortunately it seems to me that NEP is just dead money. I know that it's at its lowest it has been but the proverbial "it can always go lower" is also true. It reminds me DVN when they cut their dividends. Wouldn't be prudent to exit NEP as opposed to betting on hope?
AvatarRoger Conrad
4:04
I wouldn't argue with it being pretty much dead money the next couple years. As pointed out in the chat in several places, I think they've built a pretty solid strategy for eliminating the CEPF overhang. So I don't agree staying with it is merely "holding and hoping."  But anyone who needs the dividends should definitely move on eventually here.
Jim D.
4:10
Smart Bonds, Uncharacteristic Utilities and Can we say volatility flipflop?
Elliott & Roger.  Appreciate your work and these monthly forums put you two at the top.

Have to ask:  
  • do you two remember a more volatile and inverted time for various categories?
  • How does the "regular reasonably competent investor" move forward with an aggressive growth portfolio from here with several Utilities acting like (Kathy Wood Stocks).
(more to come)
AvatarRoger Conrad
4:10
Hi Jim. Fewer real decision makers in the stock market basically means momentum runs a lot further and faster than ever--and that includes traditionally steady sectors like utilities.

We had some pretty huge winners last year in Constellation and Vistra Energy--which got caught up in the nuclear/AI hype. And Entergy and AT&T were also big winners. On the other hand, any stock related to renewable energy got its head handed to it--despite posting earnings in line with guidance (AES. BEP etc).

My thought is that diversification and balance have never been more important for portfolio stability. So is taking profits in stocks that really run and building and sticking with positions in laggards.

I don't know if we're going to have "Cathie Wood" stocks in this portfolio. But it looks like elevated volatility will be with us for a while. And that means being a little more willing to make occasional moves to lock down gains, stocks at Dream Buy prices etc.
Jim D.
4:11
I am impressed with your business ethics and the way you run your business.  No smoke & mirrors. You deliver on what you offer. When it's a special a/o trial you stand behind them completely no problems / issues on refunds, credits or exchanges.

Keep doing business the way you've been doing it and keep me from swimming with the sharks.
AvatarRoger Conrad
4:11
Thank you for those kind words Jim. We'll always do our best.
Alex M.
4:13
Hi Roger.  There is still quite a bit of uncertainty surrounding EIX after the tragic fires.  Are your advising a "hold" at this time or more of an incremental "average down" approach?  Yield is now over 6%.  Thanks.
AvatarRoger Conrad
4:13
No, no change in the recommendation. But I will say I never advise anyone really load up on a single stock. So anyone who already has Edison should just stick with it.
Susan P
4:15
Wondering if Elliot has any thoughts on any shale-related companies that might benefit if the nominated Energy Secretary, Chris Wright, heads that department. His background with Liberty Energy suggests a very different approach to fracking may take place. Thanks again.
AvatarElliott Gue
4:15
He's well liked in the industry and he knows the shale side of the business better than any energy secretary we've had in quite some time. I suspect the Trump Administration's main approach will be to remove regulations aimed at the industry (for example the end of the LNG permitting pause on Day 1) and the potential "black swan" downside risks are lower. You're not likely to see some sort of a climate bill, for example, that impacts E&Ps ability to continue drilling or raises their costs. I'd also think that you may see industry access to capital improve a bit on the margin. Also, the President can't know everything about every industry, so I think having a person like Chris Wright there who really understands the business and can help guide policy is advantageous generally for energy companies. So, I don't think you're going to see dramatic changes for the industry, more subtle, behind-the-scenes tailwinds for the E&Ps and services names.
Guest
4:19
Roger: Appreciate your answer to my prior question.  Had NEP's financing not been "CEPFs--convertible equity preferred financing", would they still have had these issues?  I guess I do not understand if their business is healthy, then how did they get to this "Kinder Morgan" dividend cutting type position?  All of us owners relying on this stock for income are TOTALLY screwed.......Appreciate again your thoughts.  Thanks.  Barry
AvatarRoger Conrad
4:19
I think CEPFs are a particularly aggressive form of financing. They enabled NEP to accelerate drop downs to lift cash flow and the dividend. And the coupon interest rates were very low. But the tradeoff was they needed refinancing at a bad time for the stock market.

Like I said, I thought they'd go for a middle position that allowed a dividend but slower debt paydown. I think they decided against that because there would still be questions about the plan and the dividend.

My bet this past year is they'd be able to arrange an alternative financing plan--and I think management believed it as well. But at the end of the day, the CEPF owners played hardball and it was too tough to raise capital.

It is hard not to take these things personally I'll admit. And that means long recovery times when companies take this approach. But I will point out Kinder Morgan did execute and it's now trading at a new all-time high--rewarding those who stuck with it.
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