You are viewing the chat in desktop mode. Click here to switch to mobile view.
X
Return toCapitalist Times
3/30/22 Capitalist Times Live Chat
powered byJotCast
AvatarRoger Conrad
1:59
Hello everyone and thanks for tuning in today to our live webchat for March. There is no audio. Just type in your questions and we'll get to them as soon as we can concisely and comprehensively. We will send you a link to all the Q&A after we conclude, which as always will be after all questions in the queue have been answered.
Q. Do you have any thoughts on UGI Corp (NYSE: UGI)? I know it was a pick previously, and then sold. It has fallen and yields 4%. The stock has increased its dividend 12% for the last ten years. Cheers, Ben F.
 
A. Hi Ben. I track combination fuels distributor/gas utility UGI Corp in the Conrad’s Utility Investor Utility Report Card. The current advice is buy with a highest recommended entry point of 48. Management has established long-term guidance for annual earnings growth of 6-10%, supported primarily by acquisitions to improve scale economics.
 
That forecast is exposed to commodity price volatility to the extent currently high prices negatively impact demand, as the company essentially passes through wholesale costs to retail customers. To date, this has not been a major factor. But I did cut the Quality Grade from A to B this month to reflect higher ongoing risk.
2:00
Other than that, this company continues to expand its business in low risk ways, including the LPG deal in California reached this year and the Stonehenge acquisition. Bottom line is I like the stock at this price, which I think definitely reflects the risks. But risks are lower with for example Atmos Energy (NYSE: ATO).
 
 
Q. I have to apologize for asking you so many questions. But I feel this is the time we need to capitalize, after so many years of waiting for the energy cycle to return. I remember at one time in the past Enterprise Products Partners (NYSE: EPD) was mentioned to have an interest in LNG. I don't remember in what manner is their interest. Will EPD benefit significantly from what is predicted to be an increase in natural gas production and shipment?
Also, in your last newsletter you presciently said that you thought that a next wave would be an increase in natural gas prices. 
You also said that you would recommend investments to capitalize on this. What are your recommendations to ride the wave of an increase in LNG production and distribution?
Third, an analyst on CNBC has been recommending Coterra Energy (NYSE: CTRA) as a natural gas play. What are your thoughts about Coterra? Do you have another recommendation for a natural gas play that still has upward potential? Thanks—Jack A.
 
A.Hi Jack. Never apologize for asking us questions. And we fully agree with you that with the cycle turned, this is a good time to build positions in energy stocks—even after some of the big gains we’ve seen already the past couple years.
We are adding new natural gas positions in the upcoming Energy and Income Advisor, which we hope to get out to everyone tomorrow. Our view is US prices are probably a little rich here as we come into shoulder season, despite tight inventories. But as you say, the longer-term picture has shifted and US gas companies are in prime position to ramp up—not just because o
2:01
of the situation in Russia but also superior cost structure. And now that the Biden Administration is on board to boost export infrastructure, the biggest impediment to development is removed.
As for Enterprise, it doesn’t directly operate LNG export infrastructure. But it does have a very strong position in processing especially, which would be a huge beneficiary of an uptick in LNG exports. The company is also already doing a growing business with NGL exports—which are extracted and separated from the dry gas that gets exported as LNG.
As for owners of LNG export infrastructure, we have two in the Model Portfolio—Energy Transfer Partners (NYSE: ET) and Kinder Morgan Inc (NYSE: KMI). Kinder is also the leading transporter of natural gas to LNG export facilities with nearly half the market currently.
For gas producers, we do track Coterra in the E&P and Services coverage universe in Energy and Income Advisor. The current advice is buy with a highest recommended entry point of 22. It’s possible we will raise t
that going forward.
 
 
Q. I have new investible money. What are your two best REIT recommendations?—John R.
 
A. Hi John. We actually just published another issue of The REIT Sheet, along with a members-only presentation released last week. If you’re interested in REITs, I would strongly encourage checking it out if you haven’t yet by calling Sherry at 1-877-302-0749. You might also have received an email from me along with a link to a video talking about the current issue as well as the presentation.
I cover 90 different REITs in the advisory, which I’ve condensed to a list of 15 recommendations, including highest recommended entry points. Some are more aggressive than others. Some feature higher yields, others faster growth and M&A potential. What you choose—i.e., the two best recommendations—should really depend on what kind of stock you want to own.
 
 
Q. At a recent Senate Energy Committee hearing, the five Federal Energy Regulatory Commission members were grilled about the new regulations requiring pi
pipeline applications to include an analysis of how it will impact global warming. What impact will this have on midstream companies? How worried should investors be?—Ken V.
 
A. Hi Ken. The good news for investors and midstream companies is FERC has since shelved this rule. I’m not sure what the politics are here. But it looks like the Biden Administration has decided this isn’t the time to yank the rug out further from development of new natural gas infrastructure in the US, which has been slowed to a crawl in the courts the past five years or so.
 
The primary motivator appears to be geopolitics—mainly the desire to wean Europe off of Russian natural gas. But I think this may also be the first step in winning support from senators like Joe Manchin (D-WVA) for other parts of the president’s energy agenda, such as extending wind and solar tax credits. It remains to be seen how much new building of LNG and related infrastructure this will spur. But we think we will at a minimum see new gas infrastructure in s
2:02
supportive states like Texas and Louisiana, with benefits to companies like Energy Transfer, Kinder and others.
 
In any case, I don’t think the rule would have affected midstream companies much even if it had gone into effect. The main reason is there really hasn’t been much construction activity recently in the US. Also, LNG facilities in operation already have licenses to expand capacity substantially. And new development is focusing in Canada and Mexico, which have consistently been more supportive of new projects.
 
I would also argue that the more hurdles to new development from regulators and the courts there are, the more valuable existing infrastructure is. With a supply response coming eventually from US shale oil and gas producers to high prices--possibly much higher ones by then--that value will only rise in coming years. And in the meantime, midstream companies will be using rising free cash flow to pay down debt, buy back stock and increase dividends, as they've done over the past year or so.
Q. First, I would like to personally thank you for the great job you guys are doing. Your services have allowed me to be a successful dividend investor and I appreciate it! My question is, now that the Biden administration has promised to supply LNG and oil to Europe what companies are in the best position to benefit from this? Sincerely.—John P.
 
A. Thank you John. We see multiple potential beneficiaries. As I mentioned answering a previous pre-chat question, we have two actual owners of LNG export capacity in the Model Portfolio, Energy Transfer and Kinder Morgan. And Kinder has a dominant position in pipeline systems that ship gas to LNG export facilities owned by others. Cheniere Energy Partners (NYSE: CQP) is another obvious choice that we do have in our MLPs and Midstream coverage universe. In Conrad’s Utility Investor, Sempra Energy (NYSE: SRE) has been a huge winner for us as the owner of a growing portfolio of LNG export facilities in a now partially spun off subsidiary. It’s a bit pricey
2:03
currently but would be a buy on a dip.
We would view the opportunity in LNG export infrastructure as primarily a longer-term one as far as earnings go, as it takes several years to construct new facilities or even to add shipping trains to existing ones. That means there will likely be opportunities to buy in at better prices for the more popular names like Sempra. Other than that, this is good for North American gas producers. But the key will be to lock in contracts as the LNG export facilities do.
 
 
Q. Hello Roger, I took a look at your CUI-plus recommendations. Some are straddling the line of your lowest entry (above or below) within 1 standard deviation. I have found that selling puts at fantastic prices is the way to go. Worst case, you end up with 100 or 200 shares of a company you wanted to own any at a price at or below your recommendation. I truly believe options don't get the "credit" (no pun intended) they deserve. I bet if I went thru your entire portfolio, that $900+ would be much higher. Also
you can sell CC's against these positions to bring in even more income. I know this is not an original idea but given the tricky market situation. I will use all tools available. Cheers—Robert N
 
A. Thanks Robert. It’s an interesting strategy for these stocks. Elliott does have an options service that has been quite successful doing many of these same things. I wouldn’t rule out us trying a strategy with these stocks, though they generally tend to be among the least volatile in the market by design, so the implied volatility that prices them may not be that exciting. In any case, I congratulate you on your success for getting more out of this market. If you are interested in what Elliott is doing, please call Sherry at 1-877-302-0749.
 
2:06
 
 
Q. I would like to ask you a question on covered calls. Do you sell them when the stock is going up or down? How far out of the money should we go out? How far out in time?—Stan P.
 
A. Hi Stan. I think the answer to all of those questions is “it depends.” Generally speaking, if you sell options you’re always going to be better off if they expire worthless. And that’s more likely to happen if a stock drops than if it rises. As for how far out of the money you want to go, that depends on the option price, which in turn will depend on what the implied volatility of the underlying stock is. The more volatile a stock has been recently, the high the price you’ll get for selling. If you’re interested in this strategy, I would strongly advise checking out Elliott’s options service, again by calling Sherry at 1-877-302-0749
2:07
Well that's all we have from the pre-chat questions. If you feel yours didn't get sufficiently answered, please feel free to resubmit in the chat. Now let's get to some live ones.
Neil
2:12
Roger,
How about an update for MDU Resources?
And what is the rationale for rating this company class B and an aggressive holding?

I see it has divested its commodity related businesses in the last few years. 
I can see that recent increases in diesel, steel, etc. prices have to matter, regardless of how well the operations are run.
The chart does look favorable for entry, and I recently started a modest position.
AvatarRoger Conrad
2:12
Hi Neil. My rationale has basically been three-fold if you will. First, both halves of the business are well run and growing. That's the utility/regulated pipeline side, which supports the dividend and its modest growth rate. And it's the construction materials/services side, which the company has added scale profitably and consistently. That side of the business is what's weighting down the share price, as the opportunities from infrastructure construction are perceived as challenged by costs. We'll get the next installment of news in early May with Q1 results. My view is risk is overstated in the share price--which is rationale point two, the stock is cheap selling at less than 13X expected next 12 months earnings. And finally, I believe the sum of the parts is worth at least 35-40% more than the current share price. Highest rec entry is still 35.
Bill G.
2:19
Dear Roger:
I've owned T on and off for many years, but not currently.
I'm trying to figure out if this shedding of TW into TW/D
is going to be worth buying back into T for the distribution? 
T has worn me out over the years and I'm not sure
I'm ready for another dose. Your take?
Thank you
AvatarRoger Conrad
2:19
Hi Bill. On the list of mismanaged major companies, AT&T is certainly up there. And in my view, the worst decisions by far were made after activist investor Elliott Management got involved--mainly arranging a spinoff/merger of Warner Media on terms reached after a pandemic had temporarily depressed revenue, then cutting the dividend nearly in half supposedly for the purpose of cutting debt faster. And of course, Elliott Management is long gone. In any case, the 0.24 shares of DISCA we'll effectively receive is currently worth $6.24 per T share, which means the market is valuing is rest of T at $17.79--for a yield of 6.2%. That compares to 5% for VZ despite very similar businesses, ratings and dividend coverage. Bottom line--I think the sum of parts right now is worth
AvatarRoger Conrad
2:20
a lot more than AT&T's current price of around $24. That's the basis of the current recommendation to buy. I'm honestly not 100% sure right now what I'll recommend doing with the pieces of the company eventually. But i think we're due at least some pop here.
Lee B
2:25
Roger and Elliot,
Will you remind us of the stages of an energy bull market. E&P making its move first, etc. I’m particularly interested in where you think we are in this cycle and when you expect mid stream to kick into gear. I’m long EPD, MMP, MPLX, ET and KMI.
Your call on OXY has made me a lot, as well as PNX & DVN. At some point along the way would you trim E&P in favor of mid stream?
Thanks for your impeccable insights….so valuable!
AvatarElliott Gue
2:25
Sure, if we think of the energy cycle as a "clock," the bottom of the cycle (6 O'clock) is when oil prices are low and spending (CAPEX) on exploration and production has collapsed. As a result of years of lower CAPEX, supplies are shrinking while demand is usually picking up due to low prices. We hit that phase of the cycle back in 2020. As we approach the top of the cycle (9 to 12 o'clock) you'll normally see high oil prices, weak demand and rising supply as producers take advantage of high prices to accelerate development of new oil and gas fields. The important thing here is that the cycle is NOT defined by price alone, but by the supply/demand reaction to price. As a result, I think we're still in the 8 to 9 o'clock area on this cycle -- early to mid-cycle. The reason is that while prices have risen, we haven't yet seen a bid drop in demand. Indeed, weekly stats from EIA show limited demand destruction. At the same time, after roughly 8 years of underinvestment in new oil and gas projects...
AvatarElliott Gue
2:25
I think we're still roughly 3 to 5 years away from a meaningful supply response. As far as stocks are concerned, I think E&Ps are still looking good -- there will be tactical pullbacks from time-to-time but generally an uptrend. Oil Services names like SLB also should also begin to perform better as we (finally) see the beginnings of a new investment cycle. Refining stocks are also a good place to look at this stage of the cycle because demand is recovering and refining capacity closures in recent years have structurally tightened margins. This is why we recently boosted position size in VLO. Midstream can also continue to work, driven by a number of themes including increased demand for oil and gas exports. We did recently recommend trimming E&P exposure and, in the next EIA update, we're looking at new additions to the portfolio to put that cash to work (the issue will likely be out tomorrow).
Roy W
2:27
Good afternoon.

Like many of your readers, I am wondering about taking partial profits in stocks that have done very well. In particular, CPT and BSRTF are apartment REITS focusing on Sunbelt markets with expanding employment and personal income. The fundamentals are currently great, with high occupancy rates and rapidly rising rents resulting in strong earnings growth. But there will eventually be a time in each local market where supply catches up to demand, which will lead to higher vacancies and slowing rent increases. So would you recommend taking some chips off the table now, even while the fundamentals look really good?
AvatarRoger Conrad
2:27
Hi Roy. I agree the fundamentals with apartment REITs have rarely been better. And I think the backup in mortgage rates we're seeing is likely to add to it the next few months, by making renting a better deal than owning--at least as long as the US Federal Reserve is able to pursue a policy of bringing down inflation without tipping the economy into recession. I do think most of the residential sector has a valuation problem, including urban REITs that are only now getting back to pre-pandemic business health. And in the REIT Sheet, I've taken AvalonBay and MidAmerican Apartment down to holds on that basis. I'm not quite ready to take money off the table yet. But certainly anyone with a big position in a REIT rated hold in our coverage universe may want to take off some money to invest in a cheaper REIT--of which there are many now. Also Preferred Apartment is a sell now that they have a high premium takeover offer in hand.
Clint W.
2:34
Hi Elliott and Roger:

I see your current rating for Vermilion Energy is Buy<25. First, I want to confirm that the buy point is based on the NYSE:VET listing. Also, I would just appreciate your overall thoughts on Vermilion.

Thank you
AvatarRoger Conrad
2:34
Hi Clint. Yes all of the advice in our Energy and Income Advisor (and CUI and REIT Sheet) coverage universe tables is based on US dollar prices, including the non-US listings like Canada's Vermilion. The company has restored its dividend after suspending during the pandemic. And its natural gas production operations in Europe have suddenly become a lot more attractive, which I think is most probably the major catalyst for its share price this month. The acquisition of Leucrotta Exploration and its Montney shale assets announced this month I think continues to strategy of building profitable scale in Europe and Western Canada--and will be immediately accretive to production and earnings at a very good time in the energy cycle. The stock is up a lot but still very discounted to its 2018 price in the low 30s and I think it could easily get back there.
Jim
2:35
POTUS announced from Poland the US will help supply the EU natural gas LNG. ET is selling ENN in china LNG.. In the last 8 days DLNG< GLOP and HMLP trade very high volumes. HMLP is up 60% in 8 days. Am I missing the BOAT here? Is any of these a buy now?
AvatarElliott Gue
2:35
The US commitment to supply the EU with additional gas is meaningless through 2024 and into early 2025. US LNG exports are already at maximum capacity, so the US is basically just reshuffling around 1.4 to 1.5 bcf of LNG exports from other regions to the EU instead. I do think you'll see a bump higher in final investment decisions on new US LNG export capacity in the next 12 to 24 months and, given the implosion of the EU gas market, I think that permitting new facilities might get a bit easier in the US. So that will likely act as a tailwind longer term. Some of the big moves we're seeing in reaction to this US/EU deal is hype, because the near-term benefit is non-existent.   Longer term, we already have quite a bit of exposure in the portfolio including ET, which is up 40%+ year-to-date and EOG Resources up 38% year-to date. We're evaluating a couple of new plays on LNG/natgas which could be true beneficiaries of the likely surge in US exports post 2025 or so and from the near-term catalyst of new LNG
AvatarElliott Gue
2:35
facility investment decisions. We're likely to make a move there in the next issue.
Ron T.
2:40
Greetings Roger- 

I would like to get your opinion on the ATT spinoff/merger of Warner Brothers Discovery / Warner Media. Specifically, would you suggest to keep or sell the shares that stockholders of T will be receiving as a result of spinoff/merger. I know you have written about the ATT spinoff/merger in the Feb. issue but really never had a suggestion of what to do with the Warner Discovery shares. 

Thanks for your opinion
AvatarRoger Conrad
2:40
Hi Ron. My view is the sum of the parts of current AT&T will wind up being worth 35-40% more than the stock's current price--which despite this split being imminent is still deeply discounted. As I said answering an earlier question, I still haven't decided what I'll advise when the split is completed, though I do intent to wait until the dust settles before doing anything. My view is operationally both sides of the company have positive momentum--with 5G uptake expanding and Warner streaming picking up speed. And there's so much free cash flow generated on both sides to stay ahead on CAPEX, cut debt and raise dividends. I think market confidence in both companies will rise after the split. And in any case, 8X next 12 months earnings is a ridiculously low valuation for a company with consistently growing revenue.
Sohel
2:40
Enjoy these chats - always learn a lot - thanks for holding them. We have had a spike in the prices of many of the oil majors. Is this an opportunity to take some profits and reinvest later perhaps after a correction? Or best to hold off?
AvatarElliott Gue
2:40
Thanks for being part of the chats. We recommended taking some money off the table in PXD and OXY in the last issue while boosting our refining exposure to VLO. We decided against booking gains in names like XOM (a major) because we still see the stock as undervalued in light of its long-term low-cost growth projects. Generally, this is how we recommend handling price spikes such as we've seen recently -- taking partial profits on spikes in some names that we can redeploy on corrections. However, we don't want to get too aggressive, too fast doing this because generally we see more upside for the entire group. We're also looking at some new names to add -- likely we'll recommend a small position to start, followed by a strategy of buying on the dips.
Sohel
2:46
Barron’s weekend Podcast “A Golden Age for U.S. Oil Refiners”, suggesting that the gas shortage in Europe will lead to increase in refiner margins which would be a windfall for US refiners. If he’s right, he expects stock prices to rise to the tune of 30+%. Valero being his favorite. Likes MPC & PSX too. Agree with this opinion? Also interested in your price target for VLO (ie where you would recommend selling some of part of our positions)?
AvatarElliott Gue
2:46
Yes, we agree. In fact, that's pretty much the rationale we gave for adding to our VLO exposure in the last issue back in mid-March. As we wrote back in late January re: VLO, even before the Russia-Ukraine mess, there was a shortage of refining capacity in the US and EU due to the closure of several facilities during the energy bear market years. That makes remaining high-quality capacity more valuable (VLO's facilities are some of the best). EU is an even bigger mess as they were more aggressive in closing down capacity in recent years and now the sky-high oil and gas prices make their facilities uneconomic. Oil and gas refining basically involves a lot of heating things up and cooling things down, a process that's very energy intensive (natural gas or oil are gernally used to produce that thermal energy).
Barry J.
2:48
Hi Roger and Elliott:

Can you please give us your thoughts about UGI and its merits as a purchase? 

I do not see it anywhere on your 4 newsletters to which I subscribe as a stock to own. I previously owned much of APU (the company it acquired) and am trying to determine if I should cut my losses, sell it, and deploy this capital in better companies that you both recommend (like KMI, HASI, EPD, etc.).

Thanks
AvatarRoger Conrad
2:48
Hi Barry. I did answer a question on UGI earlier in the chat. The stock has not done much since the Amerigas buy-in. I think the latest hit is because of investor concerns about commodity prices, and the company's ability to avoid losing sales when they pass on wholesale costs to customers. But at a price of 11X expected next 12 months earnings and a 4.6% yield--with an increase on the way in May--investor expectations are clearly very low. There is European exposure but nothing apparently to Russian sanctions. And management is consistently adding new assets to boost scale that have an immediate positive impact on earnings. I do like Kinder, Hannon Armstrong and Enterprise at these prices. But I think UGI is likely at a low point--and despite the business diversification, it's still a possible takeover target for its stable businesses and cash flows--with a private capital buyer as the likely candidate.
Jack D.
2:56
Hi roger. When should I part company with atmos. Seems quite a bit overpriced here . Best wishes
AvatarRoger Conrad
2:56
Hi Jack. Atmos has certainly done well for us recently--and especially following the takeover offer for South Jersey Industries, which has reawakened M&A speculation even for the biggest and best in class like Atmos. I think the best course is to follow the advice in my "Portfolio Holdings Trading Above Target" table, which I update in every issue of Conrad's Utility Investor. The key number is what's in the column is labeled "Consider Taking Profits", which in Atmos' case is $120. The advice if that number is hit is to take some (not all) money off the table. We can wait for a better price to reinvest, or deploy elsewhere. It's a strategy I've recommended since summer 2016, when sector valuations crossed into unknown territory for the first time. And combined with the Dream Buy strategy of buying back in on extreme dips, it's worked out well. I do like Atmos. It has a very straightforward business plan for 6-8% earnings/dividend growth and is a potential takeover target. But at 120, it's stretched.
Pete H
2:59
Since the beginning of February the prices of UGI and ATO have been diverging. What are the reasons behind such a divergence?
AvatarRoger Conrad
2:59
Hi Pete. The main reason is foreign exposure. UGI has extensive operations in European fuels distribution, which has people on edge right now in light of volatile energy prices and sanctions on Russia. Atmos is 100% US regulated natural gas distribution, intrastate pipelines (Texas) and related infrastructure, and is in a great regulatory environment. US natural gas distribution utilities are also increasingly viewed as takeover targets.
Load More Messages
Connecting…