00:00 Josh Lipton
Welcome to “Goodbye or Goodbye.” Our mission is to help you navigate financial decisions effectively. Joining us today is Ben Cook, portfolio manager of the Hennessy Energy Transition Fund. Ben, let’s dive in and discuss your recommended buy. We’ll start with Expand Energy, which has risen about 7% this year. An impressive majority of analysts—around 90%—recommend this stock as a buy. Let’s explore the reasons behind this optimism, starting with geographical advantages.
00:45 Ben Cook
Thanks for having me, Josh. We think Expand Energy has a strong asset base, primarily located in Northwest Louisiana. This region is strategically positioned for the expected growth in LNG export capacity in the coming years, which will enhance their production and pricing prospects due to their asset location.
01:08 Josh Lipton
The second point you made concerns their reduced leverage.
01:14 Ben Cook
Correct. Expand Energy was formed from a merger between Chesapeake Energy and Southwestern Energy last year. Since then, they have successfully lowered their leverage. They are now entering a phase of production growth, which allows them to invest more funds, ultimately benefiting them in the long term.
01:37 Josh Lipton
Your final reason for considering this a buy is its strong cash flow generation.
01:43 Ben Cook
Absolutely. The company has outlined an appealing cash return strategy for investors, which includes a base dividend, debt repayment, a variable dividend, and share repurchases.
02:00 Josh Lipton
You’ve made strong points, Ben, but what downside risks should potential investors be aware of?
02:10 Ben Cook
We anticipate significant demand growth for natural gas over the next few years. However, any shifts in this outlook—whether changes in U.S. LNG exports or fluctuations in AI-driven demand for natural gas—could pose risks for Expand Energy.
02:34 Josh Lipton
Now, shifting to a stock to avoid—let’s talk about Occidental Petroleum, which has seen a decline of about 10% this year. What are your reasons for this caution?
02:51 Ben Cook
Occidental has grown through mergers, such as the acquisition of Anadarko Petroleum in 2019. Currently, around 52% of its production comes from crude oil, which is a heavier weighting compared to its peers. We believe this could create challenges with anticipated drops in oil prices over the next six months.
03:20 Josh Lipton
And your second concern is about elevated leverage?
03:25 Ben Cook
Exactly. Their recent acquisitions have resulted in above-average leverage, which means the market expects them to prioritize debt repayment before returning significant cash to investors.
03:46 Josh Lipton
And lastly, the presence of Berkshire Hathaway is another reason you advise caution?
03:52 Ben Cook
Yes, generally, Berkshire Hathaway’s involvement implies a positive outlook. However, with Berkshire holding approximately 28% of common shares, any indications of reduced interest, especially with the succession plans following Warren Buffett, could negatively impact Occidental’s stock price.
04:26 Josh Lipton
Before concluding, what potential upside risks should investors keep in mind?
04:34 Ben Cook
Great question. Any movement leading to an increase in crude oil prices could positively affect Occidental. We’ll need to monitor changes in crude oil fundamentals closely over the next six months.
04:48 Josh Lipton
So, just to recap: expand energy is a buy, and Occidental Petroleum is one to avoid. Ben, it’s always a pleasure to have you. Thank you!
04:54 Ben Cook
Thank you!
