TC Energy (TRP.TO)

*Short* half of pairs trade (Top Pick Sept 15/16, Up 1.60%) It is a very levered company. It is excessively valued. This does not make sense in a rising rate environment. The story is Keystone XL, but it would require a lot of Cap-X.

(Market Call Minute.) Most pipeline stocks are selling at very high multiples right now, but they tend to produce very great cash flow, of which they pay a lot out to shareholders. If you think some of these pipelines are going to be approved in Canada, which he does, it is reasonable to hold onto them, because in the meantime you can live with a yield they produce.

If Hillary Clinton wins the election, she thinks pipelines will become more valuable, because it is not expected that she will he be approving any new pipelines. TransCanada has just made an acquisition in the US as there are not going to be that many new pipelines developed in Canada. 5-6 years down the road, those existing pipelines will be even more valuable. Dividend yield of 3.91%.

Just raised $3 billion for an acquisition of a US pipeline. They financed it with debt and equity. Management was going to sell some of their Mexican assets to further pay down the debt, but their Mexican assets are acting so well, and they want to expand in Mexico now, that they decided just to tap the market again. He likes this company.

He was a recent seller of it. He still likes it but it is valuation. If it were to pull back to the mid-$50s he would consider it again.

This is both in the pipeline and power generation businesses. The stock has gone up a lot. A very reliable stock, and one that has increased its dividend on a regular basis. The pipeline is very interesting in that it may be very hard to build another pipeline in Canada. He is not rushing out to sell his holdings.

It is at 25 times earnings and is not cheap for a pipeline. If we go through a period of worry about rising interest rates, there is a likelihood of a correction in the stock. There is no value here.

*Short* (Pairs trade with a long on TA-T). TA-T he was buying as long as a couple of days ago and TRP-T shorting the week before. The ownership of TA renewable in TA-T is worth $7.70 of the share price. At this point the rest of TA-T has a negative value. TRP-T is incredibly expensive. They have excessive debt. They are about to cut the toll of their gas pipeline by 40% which is a major part of their revenue.

(Top Pick Nov 26/15, Up 46.79%) Keystone was rejected but TRP-T has been busy. They have a good profile of growth projects and will have good dividend growth. He is sticking with it.

(Market Call Minute.) Has an attractive yield.

Has done very well on this, this year. There is not a huge rush to get out of this, but they bought the Columbia pipeline which is a huge expense for them, and they need to divest some of their non-core assets to fund it. There are some execution risks around that. You have a little bit of time before thinking of getting out, but it is getting a little pricey.

(Market Call Minute) Results look good. Good free cash flow yield and good growth potential.

Pipelines have been good performers lately because of the search for yield. They all got hurt in the early part of this year. These stocks will probably stay higher for longer than people expect.

Pipelines have represented his largest overweight positions for quite some time. He increased his position in January during the selloff. These companies have a better opportunity set in front of them today, then what they have had any time during their history. Just did a big US acquisition, brought on by some weakness in the MLP sector, and they now have the largest natural gas pipeline system in North America. Both natural gas and oil production in North America over the past 10 years, have essentially doubled, meaning there is more gas moving more places to be processed. With a 4%+ yield, it still represents good value relative to 10 year bonds. If you don’t own this, he would be averaging into positions over the next 6-12 months. (See Top Picks.)

One of the problems for long dated assets like oil sands is that it is going to be producing oil for 25 years. Overall, this is a very good infrastructure energy company. They have recently tried to acquire Columbia Gas, which would open up gas fields in the North-Eastern US. This is a good name.