JotCast | May 2025 Capitalist Times Live Chat | 5/29/2025

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May 2025 Capitalist Times Live Chat

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Frank

2:54

Last issue of CUI you recommended Chevron as your conservative pick. I don't see it listed though in the Conservative Income Portfolio.

Roger Conrad

2:54

Hi Frank. Chevron is a member of my Top 10 DRIPs--I sometimes pull from that portfolio in Conrad's Utility Investor for the focus stocks, if I think the situation is compelling enough. And in the case of Chevron it was and still is.

Richard W.

2:55

Oil futures: I tried to digest last Friday's report but couldn't glean much from it to judge slope of oil prices. Any info on how to interpret would be appreciated.

Elliott Gue

2:55

I'm not sure which report you're referring to specifically as a lot of data and newsflow has come out on oil in the last week. Here are 3 main points I'm watching. First, there's bee a LOT of bad news out about oil in the past few weeks including OPEC's decision to accelerate production and remover voluntary production cuts faster than the market expected. Now, this news isn't really as impactful as the headlines suggest because the only country that really matters in OPEC+ is Saudi with most of the other production increases simply reflecting the fact that many OPEC countries are already producing well over their quotas. That said, what really matters is that oil hasn't really been falling -- it's trading pretty much exactly where it was back in early April amid the tariff panic. That suggests to me that all of the "bad" news on oil is already in the price in the low $60s. Second, commercial traders (basically producers and other hedgers) have the smallest net short position in oil they've had in years.

Elliott Gue

2:55

That means they're not selling oil futures or buying puts because they believe current pricing is too low. That's usually consistent with a bottoming process in crude. Third, the refining stocks have popped lately, outperforming many other energy-related sectors -- that's usually a sign that demand is perking up. In my view, weak demand is a more important concern for crude than excess supply since shale production is falling right now.

das555

3:01

What are your current thoughts on WES?

Roger Conrad

3:01

We continue to track Western Midstream Partners in Energy and Income Advisor as a buy on dips to 35 or less. Distribution coverage was modest in Q1 but adequate to cover the recent low single digit percentage increase--and i think that's about what we can expect from the Permian Basin-focused pipeline company over the next year or so. I think eventually this company gets taken over. But for now growth is going to depend on its largest customer Occidental. And despite a good location, that's going to keep a lid on growth at Western for the time being--and I would be patient for the next dip to 35 or lower for fresh money. It was there briefly earlier this month.

DRG

3:07

For those of us long-time investors in the Energy space who have limited dry powder left for the sector, do CQP and LNG warrant any consideration? Your thoughts on distribution growth prospects of CQP.

Roger Conrad

3:07

Cheniere Energy Partners and its GP Cheniere Energy have had difficult making headway since last year, when management temporarily reduced the dividend to devote more cash to self-funding capital spending on new LNG export capacity. My view at the time was this was a good move for the company long-term--especially since it enabled the company to get a jump on rivals in terms of securing new contracts, at a time when LNG facilities were put on hold by the Biden Administration if they weren't already fully permitted. And in fact, management has now returned to a policy of regular dividend increases. But there still seems to be a cloud of sorts hanging over these stocks, even with the Trump Administration rolling back regulation.

In my view, this is a good time to buy CQP at a price of 65 or lower. And I do think the stock will eventually trade at a much higher level.

Fred

3:12

I am considering adding Plains (PAA) to my IRA. Is there any UBTI with Plains that I should be prepared for?

Roger Conrad

3:12

Hi Fred. The bar for owing taxes in an IRA as the result of MLP UBTI is $1,000 account wide. That doesn't sound like a lot. But in practice, you have to own a lot of units in MLPs that generate UBTI to get there--and some MLPs routinely actually generate negative UBTI that offsets positive UBTI, as Enterprise Products Partners frequently has. I can't tell you for certain what PAA or PAGP are going to declare as UBTI for calendar year 2025. And unfortunately, looking at what they did in 2024 is no guarantee either. But I would expect it to be de minimis.

Guest

3:25

Hi Roger. Any particular reason for OVV and PAGP underperformance right now? Nat gas pricing going forward looks fantastic and should propel both companies with higher distributions in the furure.

Roger Conrad

3:25

Ovintiv may have underperformed recently in part because of anticipation the company would reduce 2025 guidance after reporting Q1 numbers--since the old guidance was based on $70 WTI oil and $4 NYMEX gas. The new guidance has considerably more conservative assumptions--$60 WTI and $3.75 gas. But the new numbers leave a lot of room for a beat. And there's still $1.5 bil in free cash flow even at the lowered guidance to back the dividend and do buybacks with no debt leverage. Looks like a great entry point for those without a position.

Plains's cash flow has historically been dependent on oil volumes--and low prices are keeping a lid on rig deployment even in the Permian Basin where most EBITDA comes from. Nonetheless, this is not the same Plains as a decade ago after systematic debt reduction and streamlining. And management has affirmed guidance, setting the stage for another dividend increase for 2026. It's also a solid buy and the stock should get a lift from an oil revival later this year.

Roger Conrad

3:27

Incidentally everyone--the May issue of Energy and Income Advisor is now live on the website.

Bill

3:34

Hi Roger, Thanks for offering the chance to ask questions. I am CUI Plus subscriber and I am wondering if your patience with AROW and KHC is running thin?

Roger Conrad

3:34

Hi Bill. I really have no real concerns about Arrow Financial. Q1 results were predictably very solid and the bank safety metrics were again top of the class--as we've come to expect from such a solid franchise. The stock price has been facing headwinds as have other banks. And despite having a market cap of just $432 million, Arrow is held by 44 ETFs for 13.56% total ownership--which means it gets traded for better or worse. My view is the end game here is ultimately a takeover of Arrow. But I'm content to be patient at this price, particularly with a mid-single digit percentage dividend increase ahead in October.

Kraft Heinz on the other hand is another story. It's still a quality franchise and management has many levers to pull--including debt reduction and a long-term streamlining/brand strengthening plan--to maintain balance sheet strength and keep paying the dividend. That said, the guidance cut was a bit worrisome. And if there's another, I may move on. It's a hold for now.

Alex M.

3:45

Hi Roger. What are your thoughts on DEA? The REIT recently reduced its dividend, but still holds the US Government as its tenant. Is this a buying opportunity on the recent pullback? Thanks.

Roger Conrad

3:45

Hi Alex. It's having the US government as basically the only tenant that's been Easterly Government Properties' (NYSE: DEA) main challenge this year. The REIT has been feverishly diversifying, buying a property leased to the District of Columbia government through 2038. And the US government certainly has the wherewithal to stay current on rents. But a business strategy centered on properties occupied by the federal government depends on leases being renewed and not broken--and love them or hate them, DOGE has introduced considerable uncertainty on both questions.

As a result, Easterly is retrenching. And I think at this price the stock probably rates a hold. But despite an 8% plus yield that at this point appears sustainable, I'm not recommending anyone invest fresh money in this REIT--at least until the government provides more clarity on its real estate strategy.

Guest

3:48

Hello Elliott, What your read on interest rates for the rest of this year?

Elliott Gue

3:48

I suspect the Fed will hold rates constant unless and until there's some sign of weakness in the hard economic data (i.e. payrolls). If history is any guide, when the Fed does start cutting it will be too late to avert recession. I suspect the economy will look OK through Q3 partly due to a pull forward of economic activity ahead of tariffs, so I'm looking for maybe 1 to 2 cuts late this year followed by more cuts into 2026. Longer-term yields I see the 10Yr capped in that 4.50 to 4.60 range and a floor around 4%.

Mary

3:56

Hi guys. Thanks for all this great advice and passing of knowledge that you do. I was wondering if you have been tracking companies that are/have been developing grid management and security tools that we could invest in or have I already missed out on that?

Roger Conrad

3:56

Hi Mary. The company I track in Conrad's Utility Investor that's in that business is Itron Inc (NSDQ: ITRI). The company has multiple information and data related products that are perennial sellers and is a leader in developing new technologies as well. Equally important, no company has as developed a customer list in the utility industry, including development partnerships. And the supply chain appears mostly tariff proof as well--should the Trump Administration find a way around the court ruling this week effectively stuffing "Liberation Day" tariffs. I currently rate the stock a buy at 100 or lower. It's a bit above that now but was there as recently as last month.

As for the smaller companies that often get a lot of press, my rule is I want to see real earnings. This is a very competitive business and there's a great deal of hype--not usually a great combination for making money.

Guest

4:04

Hello Roger: Couple of questions about PAA's dividend growth. I find its current dividend at about 9% to be most appealing!!! I believe that you have previously written that the company's goal is to return the dividend to an amount ($2.76) that existed before the 2015 crash. First, how does PAA decide how much to raise the dividend every year? Their 20% dividend increase/raise from $1.27 to $1.52 this past year was substantial. Second, how often has the company stated in quarterly guidance meetings that their goal is to return the dividend to such amount? Lastly, how binding or persuasive would such "promise" be? I believe you have told us readers that EPD and MPLX have been the only MLP's which have NOT previously cut their dividends.....Thanks. Barry

Roger Conrad

4:04

Hi Barry. Those are great questions. Plains has now restored its dividend to 38 cents per share per quarter, which is 2 cents higher than what they paid in February 2020 before cutting by 50%. It's still well below the 55 cents paid in 2017 and the 70 cents in mid-2016--when the midstream company was smaller and much financially weaker.

I think Plains will likely move to a more modest rate of dividend growth, probably starting next year. The business is carrying far less debt and is much better positioned than it's arguably ever been. But I think management is also bought into shale discipline. And that means it's going to restrain business growth and keep returning cash to shareholders, possibly with a buyback.

Finally, Energy Transfer LP Chairman Kelcy Warren famously promised full restoration of the MLP's dividend and delivered on it. Plains' management has not made that explicit promise. But their actions speak pretty loudly. And covering the dividend by nearly 2-to-1 they have a lot of room for boosts.

Guest

4:11

Hi Roger: Another quick question about PAA. I believe you have previously opined that PAA would be a great take-over candidate. What criteria would other companies consider for such an event? And when? You did a great prediction regarding Magellan a few years ago! Thanks. Barry

Roger Conrad

4:11

Hey Barry. Yeah I think there's still very good reason to envision Plains getting taken over, which would also require a buyer to roll up Plains GP Holdings--as the largest shareholder. PAA's overall market cap is less than $12 bil. That's just a little more than 10% the market cap of Enbridge Inc (TSX: ENB, NYSE: ENB), which is acquisition minded, has been expanding oil pipelines and would have much to gain by buying Plains' Permian Basin assets especially. It's a Canadian company. But trade/tariff talk notwithstanding, I'd have a hard time believing the Trump Administration would stand in the way. Another possibility would be a rollup by a super major with major Permian assets like ExxonMobil (NYSE: XOM) or Chevron (NYSE: CVX). Energy Transfer is another potential suitor, as Plains would match oil midstream assets to the natural gas pipes it already has.

As for when, I think the regulatory conditions for a deal are pretty good right now. Capital markets could be better. But it's another reason to own PAGP.

Dan

4:15

I bought EXE last summer when you had a positive recommendation around good upside potential due to all the bad news on natural gas. I'm now up over 50% since that time, so is now a good time to take some off the table or do you think there is still a lot of upside over the next year or so?

Roger Conrad

4:15

Hi Dan. Good work buying Expand Energy when sentiment was running against gas. The stock is currently trading slightly over the highest price we've recommended buying, which is $110. It's not yet at a price where we would advise taking money off the table. And as we highlight in the May issue of EIA--which is now up on the website--Q1 results and guidance look pretty solid. We're also still very bullish on gas this year.

That said, we will continue to be mindful of momentum. And when it makes sense to, we will advise taking money off the table, as we did earlier in the up cycle a couple years ago. But at this point, we'd stick with Expand--with Ovintiv a better gas play for fresh money.

Guest

4:16

Hello Elliott, What's your view on VLO given the environment we are in?

Elliott Gue

4:16

VLO has been outperforming other energy stocks alongside most refiners, which is generally a sign of stronger energy demand. VLO is the highest quality independent refiner in the US with the cleanest export story.

Guest

4:20

Hello Roger, Two questions: What is your view on PAGP at this time? Do you still rate it an aggressive play at this point? I own 1/2 the position of PAGP compared to ET and EPD and was wondering if this is a good time to bring it up to the level of those two? My other MLP holdings are WES 1/2 position and KMI full position. What is your outlook on KMI over the next year or so? It's yield is far lower than my other positions and so the only reason to hold it would be capital gains. Do you think there are cap gains left some to be had on KMI?

Roger Conrad

4:20

Thanks for those questions. We still rate Plains a solid buy up to 26.50. As we've pointed out in the past the business is still more sensitive to volumes than the midstream companies we've rated "conservative" like Enterprise. But as we note in the EIA issue now up on the site, we're increasingly positive on oil. And an improvement in prices would likely push PAA and PAGP higher.

As for Kinder, it's a very high quality midstream with a steadily growing dividend and few real risks--but that's trading above the highest price we'd invest fresh money. We think there are still some solid total returns left in the shares again with low risk. But we're not advising buying KMI right now.

Jack A.

4:26

Hi Elliott: I own a lot of pipeline stocks. I thought they would do well in a second Trump presidency as he has been pushing selling LNG and they avoid, and possibly benefit from, a fall in the price of natural gas. They seemed to be doing well up until Trump's "Liberation Day" when they all seemed to fall, as did other stocks. But where the rest of the stock market seems to have bounced back nicely, the rise in pipeline stocks has been tepid in comparison. Do you agree, and what do you attribute this to?

Elliott Gue

4:26

I think that it's important to remember that pipeline stocks had a great year in 2024. ET rallied 54%, EPD was up 28% vs. S&P 500 up approx. 25%. So, as you noted, they came in with the broader market but from a elevated point to start the year. Despite that, the S&P 500 is up less than 1% year-to-date and most of the pipeline stocks are also roughly flat. I just don't see anything unusual there or concerning. As for President Trump policy re: LNG, natgas, I generally think national politics are overplayed as a catalyst. That said, any potential tailwinds would have been priced in between Election Day and year-end or perhaps Inauguration Day. So, there may have been a bit of buy the rumor, sell the fact.

Guest

4:30

Nextera Partners KNA XPLR: I have taken a beating on this one, but have been mostly holding and hoping for a recovery. I didn't like that they did away with their results conference call when they reported May 8. Sure seems cheap at less than .25 of book value and increasing free cash flow but I don't like management using EBITDA and adjusted FCBG instead of real earnings and cash flow in their presentations. Any further thoughts on XPLR?

Roger Conrad

4:30

The former NextEra Energy Partners--now XPLR Infrastructure--did have a Q1 earnings presentation that you can view on the company website. There's also a press release there. And the company filed a 10-Q on time with the SEC.

My basic thoughts are (1) Their recovery plan is very conservative (2 ) the trade off of not relying on capital markets is it's going to take a while before the company is in any position to pay dividends, (3) Q1 results were generally solid and the payoff of CEPFs appears on track with a major tranche already retired, and (4) this stock is extremely cheap but should only be held by investors willing to let the recovery process play out.

Regards the financial metrics they use, I think they are appropriate, as cash flow is important than GAAP earnings. But the GAAP numbers like revenue, O&M expense etc are all in the 10-Q and there was solid improvement YOY.

RW

4:40

Hi Roger, You recently wrote about the usefulness of quarterly earnings call transcripts, and I heartily agree. Unfortunately, they have gotten harder to access. I used to find them at Seeking Alpha, but they now have them behind a $495 paywall. Corporate IR websites have audio recordings for playback, but rarely have written transcripts for careful study. A Google search has only about a 50-50 chance of returning a useable result. Do you have any suggestions for finding earnings call transcripts?

Roger Conrad

4:40

I'm sorry Seeking Alpha decided to put that feature behind the paywall. But it's obviously popular and everyone in this business has to seek new revenue sources to survive.

There are numerous other services that provide transcripts, pretty much all of them charge something. But you might try the SEC's Edgar site as a source for earnings call transcripts

I currently use a service called Koyfin--that's going to be more expensive than what Seeking Alpha is charging but it does include a great many features and there are various levels of service as well.

Victor

4:44

Hello guys, I hope you are doing well. It seems to me that CVX is at a support level around $136. Considering that CVX hasn't been this low since early 2022, what is your outlook on this one and where do you see it in 6 to 9 months from here? Thanks.

Roger Conrad

4:44

Hi Victor. I actually featured Chevron as a top focus stock in Conrad's Utility Investor this month--it's been trading in roughly the same range since.

I thought the Q1 results were solid--as indicated there. And I think the company is well positioned geographically with particularly strong operations in the Permian, the US Gulf offshore and the eastern Mediterranean Sea (natural gas). They'll be really well off if they're able to close on Hess Corp by winning the arbitration case with ExxonMobil over Stabroek this summer. And uncertainty about that deal along with weaker oil prices likely account for the weakness in the stock. But we look for a much higher price later this year.

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