The Panic-Proof Portfolio (Stockchase Research)Capital PowerCPX.TOPAST TOP PICKJul 18, 2024

(His theme today involves his not being overly bullish on the market outlook. He wants some dividend yield, defensive capabilities, and lower valuations.)

He doesn't know what demand will ultimately be for data centres, but he does know that power needs continue to grow. Alberta is one of the few unregulated markets in NA. Great acquisition in PJM corridor in the US, with immediate increase in electricity rates. 

Will continue to generate growth from gas-generating facilities in Alberta, some of which are renewable. Prices are rising. Low valuation of ~9x operating cashflow. Yield is 4.55%.

Far more volatile than the stable Fortis, because CPX is a merchant power provider, so they take on the risk of electric and input prices.

It has been really whipped around by data centre news which is now negative. He is not buying it as an AI play and doesn't need the volatility from that name . He owns other companies in the space.

Stock's attractive, worth buying at a modest weight. A call on the need for more power. Data centre power is a bit of a charged issue, though he thinks it's not warranted. In the US, many data centres are becoming ex-grid and self-sufficient. Over time, should be OK. Right theme, albeit with some hair. Decent yield.

If things go right, expect 10-15% per year.

A way to participate in huge electricity demand coming from AI and data centres. Pullback is pretty good entry point. Diversified portfolio of natural gas, renewables, and energy across NA. Key is that much of its power is reliable and flexible. Cashflow improved last quarter. Increased dividend for 13th consecutive year.

Depends whether you're a dividend investor. If you are, and you want dividends that grow over time, this name is one to look at. Doesn't anticipate dividend cut. Well run. Challenge is that utilities have become a second-derivative play on data centres. Quality name.

Disclosure:  Owns the bonds, but not the equity.

We need more electricity and CPX has it. They completed a big coal-gas conversion plant in Alberta, and next to it 20,000 acres. They have excess power. They bought some US companies, older gas plants, which are enjoying demand.

Ran up last September/October on expectations of a data centre deal in Alberta, but didn't come about. The big deal went to PPL. (Don't put all your eggs in one basket!)

Diversifying into the US. Good company, but not that much growth compared to some of the other names.

CPX & AI is a story that reflects aspirations more than reality. It is the future and we will see it. Not sure that AI and data centres will be as robust as current expectations. Likes it. 

He'd be a buyer here, but prefers ALA.

It takes time to build data centres, but remains a need for them and power. CPX has positioned themselves them in this demand. Valuation is good and are growing above average. They pay a nice dividend.

Focuses on selling electricity into the open market, rather than having contracts. Upside if there are electricity shortages. But in utilities, he looks for fully contracted revenues and predictable, long-term cashflows.

No real concerns. Probably good long-term hold. Predominantly nat gas with a bit of renewable energy. Half its business now in the dynamically growing, data-centre focused US. 

Trades ~27x PE, premium to historical norms. Compound return over last 10 years is an impressive 21%. Chart looks good, management is pretty good. Yield is ~4%, with good cadence of dividend growth.

He prefers another name.

Utility sector is starting to slowly matter again. Getting attention because power demand is growing, especially in US with AI and data centres.

She invests selectively in the space, and this is a name to own.

Likes the business. Yield is pretty good. One issue management sees is that Alberta government has to get its act together for data centre projects to come to fruition. (He curls with an AI consultant who said that everyone's going to Texas:  land, nat gas, minimal regulations.)

Has projects in US. Power demand will skyrocket no matter where AI is situated.

Recent earnings were in line. Great acquisition in Pennsylvania last year, which is getting increased prices. Front-and-centre for Alberta data centres. Trades at 8.5x forward operating cashflow. Good, safe utility play in growing areas.