TC Energy (TRP.TO)

(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.

(Market Call Minute) They sold last week and put money into TCL.B-T, with a better dividend.

The Columbia transaction provides a runway of growth for a few years. You have paid up a little bit for it, but it is going to be accretive next year. If they ever get something for Keystone now, it will be nothing but a bonus. They have decent growth now without it. However, the stock has discounted the growth, and has had a really nice run. Buy this on a pullback.

Made a major acquisition in the US, which will help their growth profile going forward for the next few years. All pipeline companies are having difficulty building greenfield pipelines because of environmental reasons. There is nothing wrong with this one.

(Market Call Minute.)

He likes this along with Enbridge (ENB-T) Inter Pipeline (IPL-T) and Pembina (PPL-T). If things proceed happily towards an Energy East pipeline, that would refocus his interest in this.

This has been the top performer of the big pipes recently. The pending Columbia acquisition in the US is a game changer for them. It really adds to the natural gas exposure, and into the Marsalis-Utica plays. Hasn’t trimmed yet, but if it keeps going, he probably will.

(Market Call Minute.) This has rebounded quite a bit. In the mid $50, he thinks he would be standing back. Pays a good yield of 3.8%.

Hasn’t owned this for years. Thinks their issues are being addressed. They took their free cash flow and invested it in power, but it didn’t work out the way they had hoped. This is a really good gas transportation business. Recently received permits to start construction on the Coastal GasLink pipeline. We are being transformed in the next decade to a natural gas economy. Dividend yield of 4.36%.

Generally, it pays to hold this for the long-term. However, valuation is not cheap for a regulated industry. Trading at 20X this year’s earnings and 16X next. The 4.3% dividend yield is very attractive, and they have a history of dividend increases. If you put it away, you may not get huge capital appreciation, but if you only get 4%-5% a year, and adding that to your yield, it is a very nice long term rate of return. A good, solid stock to hold in a portfolio.

The pipes have had a good retreat and are in an area where there is some value to them. The question is, where are you going to get growth from. If they got the Energy East go ahead, that would be a positive and would give you some growth down the road. At these prices, this is okay to buy. Has a good yield of 4.5%, with some growth on the side.

You probably have some more upside, but it is not a buy. He does not find it particularly attractive here.