Cushing's Toudouze Discusses Energy 'Renaissance'

I get confused looking at all the inputs in similar argument for iron Ore that perhaps the rally has gone on too long, has been made for the oil industry, that perhaps oil prices have gotten too high and are due for a fall. I want to bring in Libby two does, a partner and portfolio manager at Cushing Asset Management UH to talk a little bit about what we

should be paying attention to with respect to oil. So, Libby, there is so much going on from the political angle, where you've got President Trump, who does seem to be supportive of fossil fuels, but then policy changes that could prove to be challenging frankly for some of the big energy companies that do business in the Middle East. What

are you focusing on to determine the course ahead. Yeah, I think when you look at the crude oil, just like any other commodity, there are three main things supply, demand, in inventories, and right now we have several things that are impacting that. We have rig counts that of course impacts supply. Those are going up, so the fear of overproduction,

we've got that happening. We've got potential import tax on crude oil, which again that'll affect the big integrated companies, but there are a lot of smaller domestic independent E and P companies that that won't affect refiners. They could potentially be hurt, but it depends on the details of the tax, so you really have to dig into the details. But if you take a step back, Trump centered policy is reduced regulatory burden, increase production, increase infrastructure, and support export.

All of that is very positive for the United States. Lebby, I'm wondering if you could help me just get my

mind around the world of master limited partnerships. I used to pretend that I knew something about energy transfer partners but then it all went and it got complicated, and I think you would agree that it went from being something that was driven by demand for the yield uh specifically the payouts, because payouts from mlp s are treated as payouts let's say, from a real estate investment trust,

so it passes through directly to the investor. So I'm wondering if you could just give me a view of what's going on in the MLP space, and you might even want to use uh, you know, enterprise energy transfer partners almost as an example. Well, it's interesting you pick energy transfer because that's probably one of the most complicated of the energy infrastructure compa's Yeah, exactly. Most of them are pretty straightforward. It's a fee based business to transport, process, store,

crude oil, natural gas. I think that MLPs, which as you mentioned, used to be a yield story, probably still are a yield story in relative terms. Even though we're in a rising rate environment, yields are still fairly low, so people are looking for yield reads utilities that's expensive yield.

MLPs are still cheap yield. But today, in the age of the energy renaissance, which we're truly in, the story is growth and so there are a ton of energy infrastructure companies that are going to be able to grow these distributions that can be five six seven percent on average. Where do we get a list? I can give you a whole list of energy infrastructure count so so olivy you oversee almost four billion dollars of assets. Where where

are you investing right now? So right now, given the uh, what we've come through sixteen and coming out of the trough and the energy cycle, it's been interesting because the upstream companies, the production companies, there are price times volume game. Price went down crude those companies, cash flows went down. The MLP companies went down right in conjunction with the production companies, but their cash flows didn't go down. Why

because it's just a volume game. So as long as the demand was there, the cash flows were going to be there, and so the opportunity. There are a lot of MLPs that now have trade a very attractive valuations, whether they have parents that have billions of dollars of infrastructure to drop down, or they become a value story because they've been beaten up unfairly. Let's do the value story. Tell us give us a couple of examples. Okay, so h n g L Energy Partners company that has been

um was really beat up. Saw it's yield blowout tot um. They have, uh, they have done several things to improve their balance sheet, bring leverage down. Uh. Their big pipeline, Grand Makes of Pipeline is now online, it's moving crude, and they entered into a strategic partnership with oak Tree. This is going to provide all kinds of opportunities. They are going to be able to grow that distribution twenty plus percent this year and in three years after that

at ten plus. So how do you, as an investor away from oak Tree get in on that? So you buy the public stock and g L and g L right and g L trades right now four dollars somewhere around there, and you say growth, that's what you want to be looking for, right, because I often note that in dividend portfolios people are saying it's not just the yield, it's whether the company can actually grow the dividend into the future. All right, that was a value name, correct? Yes? Okay,

what what you say that? There are maybe names out there also that are just going to provide new growth. Yeah, so let me touch on them. The fact that this business is going to have uh five billion dollars of infrastructure that has to be built out in the United States to handle the existing supply sources. So you have many companies who have a very nice footprint in the US, companies like Williams Partners that's the premier natural gas UH

pipeline system in the United States. This is a company that has done some things to reduce their cost of capital UH. It's a company that is going to be able to grow at five to seven percent UH and a company that UM is really in the premier sweet spot of the energy renaissance. Williams Companies Williams Companies ticker w p Z. So right now, how much of your investments are predicated on the idea that oil prices will not fluctuate too much to the downside, meaning, you know,

beyond forty five a barrel or lower. Yeah, that's a great point because the energy infrastructure business and and the success of the energy infrastructure business is predicated on the energy supply chain functioning normally. And when you get down below fifty dollars UH, it's difficult for producers. There are some that can can operate in that area, but there

it's difficult for some producers to operate economically. So that becomes an issue if you get too higher prices, say we blow out, you have demand destruction, either of those things. Heard it, but we think we're writing the sweet spot fifty six. Thank you very much to do his partner, portfolio manager Cushing Asset Management. Apple. It's been touted as the world's most expensive company, at least by market share

at one point or another. Apple coming out with their results after the market closes today here to tell us more. Michael Scanlan, portfolio manager Manu Life Asset Management, based in Boston. Michael, thanks for being with us. All right, so give us your your best estimate, guestimate and everything Apple. What's gonna happen? What are they gonna tell us? Thanks for having me. You know, I think when you when you look at the report tonight, there's obviously the results from last quarter.

I think the bigger focus for everybody, uh they released tonight and conduct the conference call later on this evening will likely be more focused on what the guidance is going forward forward. I still think when you look at this company last year, there was a lot of focus on the fact that it was actually a down year for them in terms of revenues and uh, the actual iPhone units that they sold this year, they should give the back on a growth trajectory getting back to where

they were in two thousand fifteen. So you know that will likely help prevent the type of stell off that we saw early last year in the stock. Have we gotten any indications already about what their iPhone sales are going to be like? And how much is the response to Apple's earnings hinged on that all important iPhone sales number. Well, I think when you look at the quarter, you know, people tend to focus, uh probably laser like focus on

that growth margin number that they were report. And there are some one off items that they have had the last couple of quarters, especially last quarter with FX and some other things. Uh, and you know the stock tends to overreact to that number. You know, if you take a longer term focus on the Apple, you know it's it's a stock that offers a phenomenal total return. Right.

You get thirty five billion dollars of stock being bought back every year, You get just about a two percent dividend that buy backs about six percent of the company. See you add those two things together, you're getting an eight percent return before they do anything in terms of earnings growth or multiple expansions for the name. Well, well, just to do a little bit more math to make your head spin, we're talking about sales of anywhere between

seventies six and seventy eight billion. That would actually be the highest revenue in a single quarter ever. Also gross margins of between thirty eight and thirty eight and a half percent. That does compared to about forty in the year ago quarter. Correc think that's one of the big

things too. I mean, you look at this company. Nobody makes money in smartphones, right, and people are talking about this new Google Pixel phone, and you know, even the most robust projections are nowhere near the two thirty million or so iPhones at Apple cells in a year. So

you know, the numbers are big. Yes, the market cap is big, but when you look at it from evaluation standpoint, I mean, Apples at roughly thirteen thirteen and a half times this year, even cheaper than that, maybe nine and a half times free cash flow because they're pre cash flows greater than the EPs. So it's not like you're paying a premium multiple for those huge absolute numbers that

you just mentioned. My uh, as an investor, how much you're hoping to hear from Apple about bigger pushes into for example, content creation or new apps and new services, So that that's been a big controversy on the stock. And you know, the last quarter, when you think back to the earnings called, they spent a lot of time talking about the services business there and the strong growth trajectory and the contribution that they get because that's pretty

high margin revenues, so that's really critical. I wouldn't expect that you're going to hear anything new tonight in terms of new product lines or anything that along those lines. They tend to keep that pretty close to the vest, and obviously they have those well advertised product announcements that they do. That being said, there is um uh, you know, a lot of the talk right now in the industry in terms of original content production being Netflix and Amazon.

Apple has dipped their toe into that area very very slightly with this karaoke in cars initiative that they have. You know, I think the market would reward the stock if you can ultimately do something with the TV product where you can get a skinny down chord shaped type bundle product. But thus far they haven't been able to

reach an agreement with the content providers. Hey, no, Michael, you follow much more than than Apple, and I'm wondering if you can sort of give us a little bit of a window into the John Hancock Balanced Fund and some of the other funds that you run. Sure, so you know, specific to the John Hancock Balanced Fund. Tech is a pretty healthy wait for us in the portfolio, and you know, it's it's an area where we've done pretty well from an individual stock selection perspective. Tech thus

far this year has been a pretty good sector. I believe it's second the second best returning sector only two materials, and we've had some nice winners in there with Seagate reporting blowout earnings last week. Applied Materials has had a really nice run here to start the year. Facebook has

been another big winner for us. I guess if you were to look at it and point to the negative, really the only blemish for us thus far this year in tech has been Google, which you know, when you when you sort of back out the one off items that they had this quarter. Um, you know, that's still a name that we like a lot, and it is our biggest position in the portfolio overall, um by you know, quite a wired margin over the number two holding that

we have. Well, I'll just tell you that the fund is up I think a little bit more than one point so far this year. Michael Scalon, thank you so much for joining us. Michael Scalin, folio manager for Manu Life Asset Management, talking about Apple. Max Neeson, my Bloomberg Gadfly columnist, my neighbor who sits next to me all day. Uh, Max, I want to talk to you about a lot of

things going on. There's certainly a lot of earnings coming out from the pharmaceutical companies, but we need to really start with some of the rhetorics we've heard from President Trump after his meeting with some pharmaceutical CEOs. Can you give us your impression of the comments that we've heard so far. Yeah, So we're we're kind of just starting to get some details that are coming out of the meeting, from the part that the press eded on and and from the ceo that are now out of the meeting.

Trump did bring up pharmaceutical pricing again, called it astronomical. That's obviously not a particularly good sign for the industry, but that aside, it seemed to be comparatively friendly. He talked up friendly at tax reform and some de regulation at the f d A which might be a little bit more mixed, But um, the pricing thing is still out there, and that's kind of kind of remain illuming, toright.

I'm sure that the CEO has tried to kind of talk him away from his preferred remedy, which is allowing Medicare to negotiate drug prices directly. Those are the issues, right that drug price, uh, competition perhaps, and maybe even the bidding they were talking about, you know, bidding for specific contracts that would not necessarily petitive bidding. Yeah, that that would be definitely a big downside risk for a lot of firms that do a lot of business with

the government. The government, you know, if it chooses to has essentially unlimited negotiating leverage because they grant the monopolies that these companies rely on. So if they use that as a negotiating tool, they can pretty much push prices down whatever they want. They can set prices, so there's a lot of kind of a wide range of things can happen, from just getting the same rebates that are seen on the private market to something much more drastic,

which is what I think firms are afraid of. You know, Max, based on the market reaction, do we have a sense of what his President Trump's rhetoric means of astronomical pricing? I mean, do people have a sense of what the implications are for these companies based on the stock price

moves subsequent to the language being released. You know, it's very much a guessing game whether this is going to be a serious policy pushed by the president or if he just wanted what happened today, you know, all the seas to combine sort of kissed the ring and promise to move manufacturing back and higher Americans, um or if um, you know. And then there's the other kind of outstanding issue, which is can Trump actually get the Republican Party to

come along on a policy that they've historically opposed. So really, um, I think the CEOs and investors are still kind of trying to guess what's going to happen next. Yeah, well it is a challenge. I mean, I just I would throw this quote at you and then you can tell me which president said this. The pricing has been astronomical. Now you could fill in the blank with a lot of different presidents named there, because the many presidents have

been critical of the pharmaceutical industry for the prices of drugs. Yeah, and that was today. Yeah, and that that's that's not a quote you want to hear from the President exactly. Another thing you don't want to hear is that the US court system doesn't believe that you have a sufficient patent restriction on some of your drugs. And that seems to be what happened with Tava Parmaceuticals, which plunged to

its lowest in more than a decade following um. Yeah, there's a there's an amazing story because there was stuff going on. Just can you send mac sinistrate about Tava and how it came to be its generic business plus Yeah, and it's in debt, it's really were it's a it's a pretty fascinating company that that's in pretty rough shape right now. So they're the world's largest generic company and very much the world's largest generic company after they spend

forty billion to buy Allorgan's legacy generic's portfolio. Now the purchase price for that deal and its detload are larger than its market cap after this uh setback to its lead drug, It's which is a multiple scrosser strug. So I totally bungled it. What is the setback? Can you explain it? Yeah? Absolutely. So they have a drug called

capac zone. It treats multiple scorros is. Actually the lead patent expired some years ago, but they got patents on a more convenient dosage of the drug was just a couple of times a week instead of more frequently, so that they managed to switch patients to that and kind of extend the sales life of this drug much farther than anyone expected. But this might be the end of the road for that strategy because the patents on that

extension got knocked down by by the district court. Holy cow, Tava has more than a hundred billion dollars of debt. That's insane. That's according to Bloomberg the A G G D function. Uh m hmm. I wonder if that's accurate. Well, so I'm going to check that. But it shares it down. Uh Does Tava have a generics business that would be attractive if it was spun off? I mean, well, the generics business is the business. It's it's more than substantially more than half of the revenue and should grow to

half the profit this year. Kind of as the the activist acquisition matures. So I mean the they've kind of made that acquisition in order to reduce dependence on on copac zone, so that that's kind of what they're betting on too, you know, see synergies from that and improved performance, but to date it's been pretty difficult. They haven't seen the expected to return from that deal or um or

improving the generic's business for a while now. Another being hit by the slowdown in the generic's business is Fiser. Can you talk about uh that company? Their shares are

currently falling after their report. Yeah, so they they missed on EPs in the fourth quarter and also gave revenue forecast that came in below expectations because they expect to see greater than expected genneric compet shoot on their branded drugs, So they're gonna lose sales to generics companies like Teva at at an accelerated rate and don't quite have the horses in terms of newly approved or or expanding drugs to to kind of make up for to the degree

that animals expected. So that's why they're down. Just just to clarify, when you set a hundred and thirty billions, you were looking at Israeli shekels I did the math. It's okay, thirty five billion, thirty four points seven billions, all right, thank I love it. This is why you have a bloomberg, uh you know, a Max just to continue that that thought, No, don't. She's worried to continue that that thought. You know, we heard today earlier about the ups and they kind of said, you know, foreign

currency issues hurt their results. Do you hear that from pharmaceutical companies um on on a pretty frequent basis? I mean, you know, they do business all of the world, and the strong dollars is not necessarily to their benefit. And you know, most of the largest pharmaceutical companies in the world reporting dollars, so they're they're facing that and you know everything from the Euro two two problems in Venezuela. So it's definitely. They keep a lot of their currency overseas.

You know, they do exactly, which is why you saw the the You know, they keep a lot of cash overseas. You saw that massive thirty billion dollar actially on deal, which was as much about using that currency in a tax efficient manner as it was in actually expecting and speaking with the president today, Max Neeson, Thanks very much, our gad fly when it comes to all things healthcare as well as pharmaceutical related. I want to bring in

Patrick donohue. He's a German government reporter for Bloomberg in Berlin, and Patrick, Um, just can we start with uh, your lay of the land and Angela Merkel's response to this assertion via President Trump's administration. Yeah. Sure. Michael was asked about Peter Navarro's comments shortainly after he made them. Um. The specific accusation was that Germany, Germany benefits from a

grossly undervalued thunder valued euro. Um. I mean, German officials are pretty used to defending themselves against criticism about an excessive trades there plus, But in this case, Michael simply said that Germany upholds the independence of the e c B and that she plans she's happy to do nothing about the exchange rate. Well, she might not want to do anything about the exchange rate, but traders might have

a different idea. Well, I mean, it's it's it was kind of uh, I mean, it seemed to be a version of this the of a standard criticism of Germany's current account silurplus and the frame at Peter Navarro was speaking to the Financial Times. Um, he seemed to articulate this as a reason why they were dropping The US administration was dropping U T TIP the MARKEEEU U S trade agreement, and that to show that the EU was not a bilateral partner, but was a multi lateral partner.

Therefore they would not pursue it. So, Uh, Navarro's comments seemed to go in a lot of directions. You know, it sort of brings up this other story that's on the Bloomberg this morning. Let's talking about how the EU President Donald Tusk said that the Nation Block is facing the most dire threats in its six decade history, in large part because of President Trump's pronouncements as well as

those by his staff. Um, what do you make of that? Well, you, before the election was already facing huge problems with Brexits, the threats of you know, possible disintegration of of of the block, and it was a refugee crisis and everything. Um, the unpredictability that's coming from Washington, according to Pusk, and he was talking I think in the Baltic States adds

to that. And uh, he placed the new administration alongside other you threats such as Russia and China, And so that is kind of a snapshot of where we are now and where European officials see this. Right, Um, Dave, I want to bring you in here. You know, there's a lot of catastrophic talk about the biggest risk, uh, you know, in decades potentially we're getting closer to you know, the end of the world's calculator or whatever. Uh. Some

some researchers talking about the atomic clock. Right, Uh, David, where are we seeing this in the market. Well, all you have to do is look at the results out of the United Parcel Service UPS. I mean, their fourth quarter earnings coming up short of analysts low assessment in Bloomberg survey, uh, their profit forecast for this year missing projections,

and a lot of its currency related. Among other things they're talking about UPS is that adjusted earnings may get hit before taxes by four hundred million dollars this year because of currency moves. And it all has to do with the dollar strength. So don't investors look past that? Well, and I was about to say, I mean, that's that's

not that's not hysteria. That's looking at the results and responding it's not you know, people really all of a sudden moving to cash or sort of preparing for armageddon. This just people responding to earnings. I mean, I guess when you hear the histrionic talk, you wonder, how do you pair that with what we're actually seeing in the market. Yeah,

that's true. I mean, then again, you do have UPS shares down almost seven percent in today's trading, So it's something that clearly hasn't been quite factored into the extent that you're seeing that move. You know, is it going to be arm again? Well, I mean certainly UPS isn't talking about arm again. At the same time, it is

clearly something that's having an effect on their performance. Let me just to break it and Dave, is it possible that any infrastructure spending plans that would upgrade roads, highways, bridges, etcetera. Would be beneficial to FedEx as well as UPS they would get to use these Well, sure, I mean you have to think more in terms of the companies that are actually going to do the work, the construction companies

or whoever. Uh. Nonetheless, I mean there is the benefit down the line for companies that actually use the roads, no question. And also just want to mention you don't. I know this is off topic slightly, but you know the Super Bowl is coming up on Sunday, right, super Bowl fifty one. Guess who is delivering the Vince Lombardi Trophy to Houston in advance of that FedEx There you go. You know I could see your I could say, I could see your face. Just I'm talking about global. Well,

well you can. I think they'll the world will be around at least until Sunday to see them play the Super Bowl. Just have a feeling, I hope. So, Patrick Donahue, thank you so much for joining us, German government reporter from Bloomberg in Berlin, as well as they both said, thank you so much as always for joining us Bloomberg SOX blumnist and a member of the live blog. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or

whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always to catch us worldwide on Bloomberg Radio m HM