View Roger S. Conrad's Articles BY TICKER:
Telecom Stocks: Go Big Or Go Home
- T and VZ get no respect from investors because of the media's focus on the deep discounts offered by S and TMUS to win market share.
- T and VZ continue to deliver the goods in their quarterly earnings and likely dominated the FCC's recent spectrum sale.
- Investors shouldn't expect these names to make a big move as long as the regnant narrative focuses on S and TMUS' aggressive marketing of lower-priced plans.
- But T and VZ continue to generate huge amounts of free cash flow, pay down debt and execute their long-term growth strategies. And they offer above-average yields.
Utility Stocks: Frothy Valuations Signal Opportunity To Take Profits
- In 2014, utility stocks posted their best annual total return since 2000, surprising investors who assumed rising interest rates would hit the sector.
- I've long favored a buy-and-hold approach. However, at these levels, many utilities are priced to perfection and the risk-reward balance skews to the downside.
- SCG, for example, trades at a frothy valuation that doesn't price in potential cost overruns at its summer nuclear power plant.
- By taking profits on big winners, you can book several years' worth of dividends and re-enter these names when they pull back to more reasonable valuations.
Lay Of The Land: Gas-Directed Drilling Activity Provides Insight Into U.S. Producers' Response To Lower Oil Prices
- Before oil prices tumbled, gas-weighted producers focused drilling activity on areas with the best economics - one of the reasons the Marcellus Shale now accounts for about 20% of gas production.
- Oil-weighted producers will follow suit, laying down rigs that drill vertically because of the lower initial production rates on these wells and curtailing activity in marginal basins and science projects.
- Production levels will take longer than expected to fall as operators focus on their highest-quality acreage and slowly work through inventories of drilled but uncompleted wells.
- Now isn't the time to buy upstream names. Also be wary of gathering-and-processing names in marginal basins or with contracts that entail exposure to NGL prices.
- Shorting gathering and processing names is dangerous because of likely consolidation and private-equity outfits looking to monetize assets.
U.S. REIT Space Short On Bargains But W.P. Carey Looks Attractive
- US real estate investment trusts were cheap in early 2014 when concerns about rising interest rates were at the forefront of many investors' minds.
- Many US REITs trade at elevated valuations. Names that feature prominently in capitalization-weighted ETFs will trade with more momentum to the upside and downside. We prefer to dig in margins.
- Of REITs we surveyed, WPC offers best combination of yield and growth.
Utility Stocks: Focus On Policy, Not Politics
- Midterm election results imply more gridlock at the federal level.
- Outcomes of gubernatorial races have important implications for our investments; governors appoint regulators who oversee utilities and set industry rules.
- We run through the results from the gubernatorial elections and their implications for utilities that operate in each of those states.
Navios Maritime Midstream Partners LP: The Straight Story On This Mega-Yielder
- The minimum quarterly distribution contemplated by NAP's prospectus implies a double-digit dividend yield.
- We like NAP's visible pipeline of potential asset drop-downs from its parent, NNA.
- Tanker rates have rallied this fall, a period of seasonal strength. Although tanker market has bottomed from over-ordering during last up-cycle, more scrapping is needed for sustainable improvement in day-rates.
- We may become more constructive on NAP once we get a better sense of management's strategy and the industry is further along in its self-help efforts.
- We'll follow NNA CEO Angeliki Frangou's lead and look for day-rates to reach the mid- to high $30,000s for longer periods.
Spin Cycle: Expect More MLP And Yieldco Spin-Offs
- Investor demand for securities that offer dividend growth should continue, thanks to the low-yield environment that persists today and perception that this growth element will offset higher interest rates down line.
- D, NEE and NRG have taken advantage of this environment, spinning off MLPs (DM, NEP) and yieldcos (NYLD) to much fanfare.
- Parents unlock value by monetizing assets at higher valuations and recycling capital into new growth projects at parent level.
- NI to get in on the act, splitting midstream natgas assets off as separate C-corp, COLP, and associated MLP CPPL. NFG and SRE contemplating MLPs. FSLR looking at yieldco.
Our Analysis Of CONE Midstream Partners LP
- CNNX cut from similar clothe as EQM and ACMP, two other names that own gathering pipelines in the Marcellus Shale and were closely associated with leading producers at IPO.
- Much of CNNX's near-term upside will come from organic volume growth, but drop-down element provides a degree of protection if sponsors CNX and NBL scale back development plans.
- Sponsors need to line up more post-2015 takeaway capacity from Marcellus Shale to improve natgas price realizations and support development plans.
- A good stock for aggressive investors seeking growth, CNNX could be a worthwhile buy on a pullback. More clarity on CNX and NBL's 2015 development plan could be catalyst.
Will The Renewable-Energy Boom Go Bust?
- US utilities have developed a great deal of renewable-energy capacity, but the sustainability of this building boom hinges on government support--and politics.
- Federal tax credits for solar power will expire in 2017 if the government doesn't move to renew these subsidies.
- Amid these political uncertainties, we prefer utilities that have walked the line, balancing gas- and coal-fired generation with renewable energy.
- HE could be an interesting short-term play because of the potential for a short squeeze.
Water Stocks: Great Promise But At What Cost?
- The US needs to make massive investments in municipal water systems to ensure safe supplies for the communities these serve - a crushing burden to state and local governments - and taxpayers.
- We prefer system operators to engineering, procurement and construction companies; the latter names have taken a big hit because municipalities have balked on spending.
- Cash-strapped municipalities increasingly look to monetize their water services, giving well-positioned private operators such as WTR ample opportunity to grow through consolidation.
- Avoid AWR, CWT, SJW, all of which entail too much regulatory risk.
Making Sense Of The Marcellus Shale's Midstream Madness
- Major midstream operators such as SEP, WPZ, KMP and ETP will have picked most of the low-hanging fruit (pipeline reversals and looping) for natgas takeaway capacity from the Northeast.
- Project announcements have started to include more greenfield components, which entail greater expense.
- Midstream names addressing these higher costs by offering equity interests to customers and seeking to capture more of the incremental cash flow by acquiring gathering and processing capacity.
Electric Utilities: The American Way Vs. Germany And Australia
- Critics of the US solar boom point to soaring electricity costs in Germany as a major risk of subsidies for renewable energy.
- These sensationalist claims ignore salient differences between the US and European electricity markets.
- The Australian experience serves as a reminder that the end of US solar subsidies could deal a major blow to some high-flying renewable energy names.
Kinder Morgan Inc.'s Mega-Deal: Lower Cost Of Capital And Maximum Optionality
- KMI's consolidation of EPB, KMP and KMR shouldn't be viewed as a repudiation of the MLP structure.
- Strategic move aligns with actions taken by BWP - L, ETP - ETE and EEP - ENB to drive distribution growth and lower cost of capital.
- Consolidation removes IDR burden and maximizes KMI's options. Company can acquire assets that don't generate MLP-qualifying income or spin off assets as smaller, rapidly-growing MLP to further reduce capital costs.
NextEra Energy Partners LP: Plenty Of Steak, But Priced For Sizzle
- NEP IPO well-timed considering investors' appetite for solar power and dividend-paying equities such as MLPs.
- General partner NEE gives NEP a highly visible source of cash flow and distribution growth by virtue of its extensive renewable-energy assets.
- We like NEP's business model, but not the valuation. Investors should wait for a pullback or consider BEP.
AT&T's Tie-Up With DirecTV Is All About Scale
- Incremental cash flow from acquisition of DTV gives T more financial firepower in an industry where network investment has differentiated winners from losers.
- Increased scale gives combined company more leverage in negotiations with content providers.
- Deal approval faces fewer regulatory hurdles than expected with consolidation within U.S. wireless space.
- AT&T is a good buy on pullbacks for conservative investors seeking a steady income stream.
Exelon Corp. Peps Up With Proposed Acquisition Of Pepco
- EXC's takeover offer for POM would ensure that regulated operations cover dividend, improving safety of payout and setting stage for future growth.
- EXC will spend almost $21 billion on upgrades and expansions to its regulated asset base over next five years, driving dividend growth.
- Regulatory approval may not face as many roadblocks as some expect.
Forget T-Mobile U.S.: Telecom Is Still For Spenders
- TMUS's efforts to win subscribers have worsened margin contraction.
- Questions about stickiness of new subscribers, given importance of network quality.
- Combination of S and TMUS makes sense, but regulatory hurdles.
- Telecom industry rewards those who spend on building out their networks.
Keystone XL: Investment Opportunities Amid The Controversy
- Approval of Keystone XL won't make or break TRP.
- TRP has extensive and growing project backlog that should drive growth in coming years.
- Expect consolidation among smaller E&P companies, which will feel pain if Keystone XL isn't approved.
- Kinder Morgan Energy Partners: Still Not A House Of Cards
- Separating Turnaround Stories From The Value Traps In The MLP Space
- 5 Forecasts For Income Investors
- Pullback In US REITs Creates Buying Opportunities
- High-Yield Telecom Stocks: The Short Sellers' Dilemma
- M&A Activity Accelerates In The Utility Sector -- Who's Next?
- Do Rooftop Solar And Rising Interest Rates Pose A Credible Threat To Utility Stocks?
- What's Rate Sensitive And What's Not
- Challenges And Opportunities In Canada's Oil And Gas Industry
- My Top 3 Canadian Midstream Stocks
- Why I Prefer AT&T To Apple
- Utility Investors Keep An Eye On Washington
- Dominion Resources Catches MLP Fever
- Kinder Morgan Energy Partners LP: Not A House Of Cards