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October 2023 Capitalist Times Live Chat
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AvatarElliott Gue
5:25
My long-term outlook on VLO is bullish because they have quality refining assets on the US Gulf Coast and the world has insufficient refining capacity following the closure of significant EU and US capacity in recent years. So, refining margins will remain elevated through the cycle.

We did recommend lightening up on VLO a few months back (we were early with that call). However, fundamentally, I think the refiners are more vulnerable to weakness in energy demand than the producers or services firms. Also VLO remains way above our buy under point at $105. So, I'd say we're more likely to trim up here and add on dips below that buy point when sentiment on the refiners sours.
Alex M
5:31
Hey Roger.  What are your thoughts on CDZI and CDZIP (preferred)?  It's a tiny water services company in California.  Any future potential in this speculative name?
AvatarRoger Conrad
5:31
Cadiz Inc (NSDQ: CDZI) isn't a company I've tracked in the past but thank you for bringing it to my attention. As you say, it's a tiny company with $185 mil or so of market capitalization and just $2.1 mil of revenue for the 12 months ended June 30. It also does not pay a dividend and has not yet generated positive earnings--nor do they appear to generate sufficient cash flow to pay dividends on the preferred stock, relying this year on equity issuance. It's a fledgling business bottom line. But I will keep looking into it.
Victor
5:31
Elliott,
OXY seems to be in a trading range between $57 and $65. Warren Buffet now owns 25.8% of OXY shares. But the stock is still in this range. What would be the catalyst for this one to break on the upside?
AvatarElliott Gue
5:31
I think the longer term catalyst will be that as OXY pays down its debt, the company could start to deploy more free cash flow to return capital to shareholders. That could involve dividend increases or buybacks. Generally though what you're seeing with OXY is that its Enterprise Value (EV) -- the sum of equity and net debt -- may only grow a bit from here but it can generate value for shareholders as it pays down debt, transferring some of that EV value from bond to stockholders.
Victor
5:32
MMP has been acquired by OKE but I don’t’ see OKE on the actively managed portfolio yet. MMP was considered a conservative position. Is OKE classified the same way?
AvatarRoger Conrad
5:32
Yes. Our intent was to hold the MMP through the merger and ONEOK thereafter. This is a much larger, more diversified and financially stronger company than either was on its own--and suitable for conservative investors.
Victor
5:35
ET is on a pretty solid uptrend. Do you expect this to continue?
AvatarRoger Conrad
5:35
The business is in a decided uptrend--with the Crestwood merger set to close on Nov 3. So long as that's the case, I'll be bullish. Earnings are due out Nov 1, at which time we should see updated guidance account for the Crestwood assets. So far as the share price, midstream companies are typically last to the party when there's an energy price uptrend as there is now. So the gains can come in fits and starts. And that's why we've kept the highest recommended entry point at 15--but ultimately in this cycle I think the share price will be two to three times higher and the dividend at least 40-50% higher as well--so long as business trajectory stays on track.
Guest
5:40
Is this a good time to buy more Southern Company? Thanks, Sandy
AvatarRoger Conrad
5:40
The big issue for Southern is getting the second new nuclear reactor up and running without incurring significant new expenses--and then securing a fair deal on cost recovery from Georgia regulators. So far, both appear on track, with a settlement in for Georgia rates and Vogtle Unit 4 nearing startup. We'll see Q3 earnings and guidance on Nov 2, which should bring news on both of those fronts. And in the meantime, the company this week entered a major renewable energy deal with the US government that should further ensure CAPEX-led growth. I rate Southern a buy at 70 or lower--and would likely raise that once Vogtle issues are behind the company. The stock is below that point now, but the question of whether to add to positions should always be based on the principles of portfolio diversification and balance--and what's good for one individual may not be for another.
Victor
5:45
Hi Roger, PBA has been under-performing for a while. Do you expect a reversal at some point?
AvatarRoger Conrad
5:45
Pembina is in a very good place as Canada's number three midstream company behind Enbridge and TC Energy--and a strong base of long-term contracted revenue with a solid balance sheet. The company is also in prime position to benefit from increased Canadian exports of NGLs and eventually LNG from the Pacific Coast to Asia. Q3 earnings and guidance are Nov 2 and there's every sign what we see will be in line with guidance. Notably, the Canadian dollar has been weak since July, which does account for some of the weakness versus US midstreams. But the bottom line is this is a solid company and I continue to rate it buy up to 38 for those without positions especially.
Don
5:50
Roger/ Elliott--Do you think that Canadian blue chips with high yields are a place to put some funds now? I understand that there is a currency risk but their pipelines, oil & gas companies, telcos and banks seem attractive right now. Thanks for your sound advice over the years.
AvatarRoger Conrad
5:50
Hi Don. As I just wrote answering the previous question, I like Pembina a lot as a long-term energy midstream play. I would also add I think the Canadian dollar ultimately strengthens from here against the USD, which will boost USD prices of Canadian stocks. The current level of 71 cents per USD is close to all-time lows in the floating rate era, and at the peak of the previous energy cycle CAD traded at over parity. I've discussed Enbridge at length today. but I also like TC Energy--which I think will get a huge lift when the Coastal GasLink pipeline enters service. I expect an update Nov 8 when TC announces results. As stocks outside of energy, BCE is still a buy in Conrad's Utility Investor and I cover other utilities there as well. BCE reports Nov 2.
Sohel
5:54
Hi Roger,  Thanks for holding these chats! Please compare ENB and TRP and if you have a preference between the two at current prices. Thanks.
AvatarRoger Conrad
5:54
You're welcome Sohel. I've obviously given a glowing review of both in this chat, which is also reflected consistently in our advisories despite underperformance vs US midstreams this year. Both of these contract-focused companies have exceptionally steady cash flow and secure balance sheets and dividends. And both are quite cheap now. I guess the main distinction is I can see more near term upside catalysts for TC at this point--starting with the Coastal GasLinik pipeline coming into service but also progress with asset sales and the upcoming oil pipelines spinoff--the main asset being the Keystone pipeline, which would be revived if Republicans secure more power in Washington. I do think both stocks are buys though.
Willy
5:58
Roger, this may have been covered earlier, but would you suggest selling NEP and redeploying the proceeds elsewhere?
AvatarRoger Conrad
5:58
Hi Willy. I have answered quite a few questions on NextEra Energy Partners today. But the bottom line is I plan to stick with it through what should be a powerful recovery. The price is quite low after the selloff, even with the 40% or so gain off the low point. But dividend is safe and its current growth plan is sustainable, backed by long-term contracted assets with strong counterparties. Parent NextEra Energy has expressed support for NEP as a funding vehicle long-term, disavowing any intent to roll it up as large oil and gas companies have done their MLPs the past several years. But even if NEE changed its mind, it would have to pay a higher price than the current 68% of book value.
Sohel
6:05
Hi Roger, REITs continue to get hammered. O is at lows not seen for a long time. Will higher for longer long term rates depress REITs for just as long?
AvatarRoger Conrad
6:05
As I wrote in the October REIT Sheet, I think higher interest rates have made it very difficult to build anything recently. But that's now well reflected in prices of REITs across the board. And frankly, the sellers have lumped companies with limited interest rate exposure in with those that are greatly affected.

I have a little different view on the macro picture than most. Mainly, I believe the Fed's clamp down on investment has sown the seeds for far worse supply shortages in coming years than would otherwise be the case--with real estate a prime example. I think they will succeed in bringing down headline inflation near-term, very likely at the cost of a recession. But best in class REITs have long been prepared for a downturn and what follows isn't likely to be nearly as destructive as the pandemic. Then they'll benefit as inflation comes back. My view is to build positions in selected REITs now, with the understanding they could go lower near term before returning higher.
AvatarRoger Conrad
6:06
The REIT Sheet has suggested buys.
Hans
6:10
Roger,  With a higher possibility of a recession next year, is it a good time to look at Utility stocks now or hold off for some time.
AvatarRoger Conrad
6:10
I think anything you buy right now should be in increments--some here and some later--rather than all at once. And I think anything you do should be with the understanding that the Fed's inflation fighting appears likely to land the economy in a recession, which would almost certainly accelerate selling in stocks across the board. But so long as utilities are posting solid results and sticking to guidance in the face of interest rate headwinds--as NEE/NEP and now CMS, Centerpoint and FirstEnergy have in Q3 results--recovery is in the cards from the selloff we've seen this year.  And the entry points we're seeing now are excellent for adding to or establishing positions in best in class utilities.
Sohel
6:16
Hello Roger, What's your position on D - hold despite the major drop? Is there a suitable tax loss swap for better position in utility space?
AvatarRoger Conrad
6:16
Dominion's shareholder returns the next few years are going to depend heavily on what its strategic plan is and how well the company executes it. The analyst mood ahead of Q3 earnings on Nov 3 is decidedly cautious, with 4 buys and 13 holds and numerous research moving around their 12 month target prices--though I do note that insiders are again net buyers.

The fact that so many are expecting the worst here is in my view good reason for optimism--meaning anything less than a horrific disappointment with the strategic review is a potential catalyst for dramatic upside. If we don't get that news in November, it might be time for some to seek out tax loss swap candidates. And another southern utility that's been hit hard like Duke Energy (earnings Nov 2) is a potential candidate. But at this point, I intend to stick through the strategic review, which I think will set the stage for a long-term recovery in Dominion.
Ron
6:23
Do you think the Fed is done in raising rates!
AvatarRoger Conrad
6:23
Hi Ron. I'm no long distance mind reader. But based on statements from those with a vote on FOMC, they appear pretty satisfied that what they're doing is the right course. And that means a likelihood of more rate increases ahead. As I've said, I think this Fed has learned the wrong lessons of history. Raising rates is crushing investment now in supplies of everything from energy to housing. And that's sowing the seeds of supply shortages and higher inflation in coming years. They did the same thing in the late 1960s, early 70s, late 70s/early 80s, only to see inflation come roaring back higher than ever. But they can't seem to see past their economics textbooks. And that means we need to be prepared for even higher interest rates--at least until the Fed shoves the economy into a recession.
Bonnie Beth
6:30
Thank you Roger for your reply.   One more question - from your Dream prices, what stocks do you believe look the most attractive as dream buys?  I am looking to buy more D, T, AY, HASI, NEP.  If a stock is at or below your dream price but I paid less for the stock than the dream price, is it advisable to buy more shares?   I bought BEP at $16 an KMI at $12.   Thank you again for all your help.
AvatarRoger Conrad
6:30
I think it's OK to add to positions in stocks trading below Dream Buy prices provided (1)the underlying companies are still solid and (2)one doesn't overload on any one position, no matter how attractive it may look. So far of the stocks you list, KMI, NEP and T have affirmed they're still on track despite the headwind of high interest rates. I expect Atlantica, Brookfield Renewable, Dominion and Hannon Armstrong to do so early next month. But until they do, there is the possibility they have weakened--and Dominion also carries the uncertainty of a critical strategic review that could potentially send shares up or down dramatically. I think the key here is not to be in a hurry to do anything. Yes, NEP has really bounced the past couple days. But consider the Fed is still likely to push up interest rates until there's a recession that triggers more stock market selling. We want to buy low and this is a great entry point for high quality utilities. But prices could also go lower in the next few months.
Bill
6:36
What to do with Atlantica as it hits new lows with the other renewables?
AvatarRoger Conrad
6:36
Hi Bill. I don't think there's anything to do but just hold on. We're not likely to see Q3 results and updated guidance until the second week in November at the earliest. But the dividend of nearly 10% is backed by cash flow from long-term contracted assets with protection from inflation and currency volatility and little real exposure to higher interest rates as debt is almost all at the project level where it will be fully amortized before contracts expire and will not need refinancing. There's also an ongoing strategic review as well as the potential for 42.15% owner Algonquin Power & Utilities to sell its ownership stake to a stronger player--with a full takeover also a possibility. We're going to need a bit more patience for this one to pay off. But it's still the same story and again that's a pretty big dividend to reward us for sticking around.
Mark P
6:39
Hi there... you guys seem to like Energy Transfer (ET)  a lot.  What would you say are your top 3 energy MLPs right now? Considering likelihood of share price appreciation and dividends? Thanks
AvatarRoger Conrad
6:39
Hi Mark. As I've said before in this chat, Energy Transfer was my top midstream pick to start the year and remains so now, thanks to a combination of very high yield and upside. As for other midstreams, I would suggest looking at our Model Portfolio names and buying those trading below our maximum recommended entry points. If you're looking for safety, Enterprise is still the most utility-like name on the list. Plains GP Holdings is my top candidate for a fresh midstream merger. And of course the Canadian names are quite cheap relative to US midstreams.
Tim O.
6:45
A question for Roger please, I expect many would like the answer. In one of his next missives, could Roger please go over the mechanics of the AQNU units he suggested when we sold AQN?
 
The ones I bought are down about 28%, but as I remember it, they will convert sometime next year at a level that would erase the current loss.
 
Thank you
AvatarRoger Conrad
6:45
Hi Tim. The Algonquin preferred's price from here to its conversion date in June 2024 is going to follow the price of the common stock AQN up and down. The current conversion ratio is 3.333 AQN per one AQNU. And that's what it will be unless AQN rises to $15 or higher by the conversion date. If AQN does hit 15 or higher, the conversion rate will be set by a formula of 50 divided by AQN's share price. The lowest the conversion rate can go is 2.777 AQN per AQNU share, which would happen on a move by AQN to $18 or higher.

There is no cash conversion rate. if you are at a loss in AQNU when it converts to AQN, it should roll over as the cost basis for the AQN shares you'll receive. Hope this helps. You can also read my initial writeup of AQNU and the swap by going to the Search function (magnifying glass) on the CUI website and typing in Algonquin.
Diane Q
6:55
Hi Elliot and Roger,

My father was an avid fan of your newsletters going way back – was it Personal Finance then? He would go over them with me as I was first starting to invest and I’m still taking them.

2 questions:

1st, which of your publications would you recommend for a 22 year old just starting out? (He can only afford one at this point.)

2nd, I’m at the other end of the age line (almost 80!) and living off income from investments. Until now I have been mostly invested in stocks, but I keep reading that someone my age should have a ratio of around 20% stocks / 50% bonds / 30% cash. What do you think of this advice? Any suggestions on bonds? Can you comment on TLTW

Thanks for this service, it’s been a big help.
AvatarRoger Conrad
6:55
Hi Diane
What a nice story! I wonder if I met your dad at some point from our days at Personal Finance and the old company. We're so happy you've stuck with us over the years, and are now helping a younger generation take ownership of their investments. Would you ever consider writing us a Google review?

Anyway, as a publication for the 22-year-old, I would suggest either Elliott's Creating Wealth or my CUI Plus. Both make specific recommendations within managed portfolios and focus on their individual company and business fundamentals. They also provide detailed strategies--growth and income, respectively. And there's discussion of current economic and market conditions and what they mean as well. Call Sherry anytime 9-5 ET, Monday through Friday and she can set you up (877-302-0749).

I would also invite him to sign up for our free Substack.com publications, which he can find under our names Roger Conrad and Elliott Gue.
AvatarRoger Conrad
6:57
As for your question about bonds, the standard stocks/bonds/cash allocation for those 80 years young or so could have been a total disaster the last 18 months--as the Federal Reserve's anti-inflation crusade has literally blown up the bond market. The silver lining is there are opportunities there now, particularly in shorter term securities issues by utilities that I intend to focus on in the November CUI issue.
7:00
I have been recommending a level of cash for income investors on the order of 30% this year--mainly because I thought downside risk for the stock market was great with the Federal Reserve raising interest rates and seemingly intent on doing so until the economy has slid into recession. That's still my greatest concern. But ultimately, the best idea for all is to invest in something besides cash. And while there are some fixed income opportunities, that's going to mainly be stocks--which offer upside and pay dividends that rise in line with inflation.
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