election implications, GRoDT schedules & news, plus Q&A ?3

09:45 09-Nov-20

Futures are indicating more gains this morning, but I attribute that more to vaccine hopes than the Biden win.  The most important fact in that article to me is that 15-20M doses (only about 5% of the U.S. population) could be ready by year-end.  I also have to reiterate that having a non-split Congress is at least as important as the Presidency, and revert my Friday statement on the matter to go back to predicting a narrower Republican majority in the Senate.  The runoffs in Georgia could still change that, and they mean that we won't have a real window on new policy for another two months, as both sides essentially continue campaigning for those seats.  For what it's worth, Georgians seem to care most about the economy & health care, but I'm not sure any subject is completely safe.  Even so, there are a few implications worth pointing out:

• For BGC, the issues are primarily regulatory, so this is a minor positive, as discussed here.  BGCP is up another 5% in the pre-market, though it's not certain that is sustainable for the short term.
  
• For Google and other big tech, easing immigration and increased confidence in process-based regulation are positive, but major antitrust concerns remain.
• Hydrocarbon companies are up big on pandemic recovery hopes, but Biden is at least a minor negative for the American ones, including Energy Recovery.
• My favorite telecom sector is largely unaffected.  See below for more color.
  
• Green names including CVA, AES and Clearway get a boost, but not an investment-worthy one for me.  Orbital probably also deserves category inclusion, and it is expected to report a loss of 14 cents from $23.5M of revenue, increasing on to $34.4M a week from this morning.  The company doesn't have a favorable pandemic footprint and the timing of the call also doesn't inspire confidence.  See below for lots of AMSC green color also.
• However, AMSC and eMagin have defense budget concerns.  The latter is scheduled for a loss of 2 cents on Thursday morning, from $7.9M of revenue, declining to $7.1M.

The fresh news this morning is Resonant extending its PMTx fabrication modeling and monitoring software to TC-SAW filters.  If I recall past management comments correctly, this won't generate additional revenue for the time being, but any move to broader part manufacturing is still positive.  We'll see what Resonant has to say tomorrow afternoon.

More stock specific questions came in over the weekend about the implications of the Biden win, and I am including them here for additional color.  For the general American markets over the long term, the election looks not nearly as bad as it could have been, but not nearly enough to reverse their gradual decline.  The media may cheer the best election turn out in half a century, but from a global perspective, requiring this level of strife to get 66% voter turnout isn't entirely positive in my eyes.  Rising debt concerns will eventually come to the fore; we saw €/$1.19 over the weekend and it remains close to that level.  We'll also have to see how the country's pandemic response evolves, but a January 20th inauguration could easily be too little too late.  Consequently, Vodafone will get more attention from me than Orbital early next week.

Since CWEN/A is a bit expensive for now (at about $27 vs $23 fair value) it seems to me LUMN, VOD, and maybe CVA ,are the best targets for new $$ at this time.   Do you agree?    Last week I picked up some LUMN at <$9/share.

I agree that CWEN/A is expensive, while having already pointed out below that much depends on how one values time.  I certainly agree that LUMN is a better value at almost two and a half times the yield, even though the predictable timeline to real return (via M&A for LUMN) is similar. 

There's no argument about VOD being cheap either; it is trading half its book value and has been edging back toward profitability.  However, I have pointed out that the potential for it to re-enter the American market via partnership with Dish seems diminished.  The main things it would have to offer are access to cheap financing and a more global footprint.  I've also tracked the recently failed Mavenir IPO, and it's not the only one.  A much steadier and more established set of assets like Vantage Towers shouldn't have any trouble executing an IPO, but market appetite is still a consideration in the price it will garner. 

So despite the value, I've gone quiet on VOD as of late because of the risk of it remaining a stagnant asset.  It's also pretty clear that the market is worried about what the VOD dividend will be post-Vantage.  Theoretically, this shouldn't change due to the IPO, but it's also not like Vodafone has had stellar results since the India debacle, which was a potentially game-changing setback.  Presumably we'll know more in a week, following the first half results, followed by the Vantage Capital Markets day.

I think I've also been clear that, despite mostly recovered operations, the path to any value in CVA is through M&A, with no timeline or other details currently available on the effort.  I also don't have complete trust in new management.  Even a growth stock like DOX has a better yield at this point, and in my opinion, better growth and M&A prospects.  I wonder if you saw my initiation on that, along with the offer to get a free month by switching to direct card payments? 

On 11/7/20 4:36 AM, a susbscriber wrote:

Thanks to you I made a profitable trade in AMSC, but am not clear on what they are doing for ComEd.     Do AMSC's liquid-nitrogen-cooled superconducting wires connect two substations?     Superconducting wires cannot be practical over long distances.    So how is AMSC a Green Energy company (other than its wind effort)?

On 11/8/20 12:18 PM, Esekla wrote:

As far as I can tell, nobody outside Amsc, ComEd and the government knows exactly what is going to be done in the initial project since the Department of Homeland Security is regulating and sponsoring it.  A press release this year from Nexans, who is making the cable for this project, references a single substation, and a recent presentation from Amsc seems to confirm that with addition of a second substation?  That fits with the project costs; the pilot project in Germany, which is the main focus of the first link, cost $17.5M and Amsc put its initial ComEd project at $60M, with the difference being explained mainly by the relative lengths at at 1km and 3 miles, respectively. 

That first project should be considered the American pilot for the proposed second ComEd project.  If we trusted the broad overview planning that Nexans released 3 years ago, then the second project would connect 5 substations, using 3 cooling units, which fits with Amsc saying the follow-up would be 4-6x larger.

As for your statement about superconductors not being practical over long distances.  I certainly agree that they are not going to replace high tension wires in the foreseeable future.  If there is any switch at all, that could be to HVDC transmission as we transition toward solar and wind, but there is probably a tipping point that has to be reached for extending such solutions beyond the generation farms themselves.

With regard to Amsc (the company) and AMSC (the stock) being green, I'm guessing that you're reacting to my 23% of revenue from wind statistic?  Amsc's voltage regulation products like DVAR, VBO, and now whatever NEPSI sells, get included in the Grid segment, but they certainly fall into the green category.  Handling the introduction of variable rates of generation into the transmission grid is a major consideration for using solar and wind at all, although I think that could conceivably decline if we ever reached the tipping point considered in the prior paragraph.  It's also unclear to me to what extent battery storage alleviates this need, but I think your question is answered?

Going back to the ComEd projects and Amsc's REG (resilient electric grid) products in general, you should realize that those are mostly about resiliency and (though governments don't love pointing it out) security of power supply to customers.  It is worth noting that Amsc hasn't made any money to speak of from these products yet, but you do understand correctly that they are not primarily about energy savings.  Though HTS wire does reduce power loss, most estimates put electric loss from current transmission to the customer at 5+/-3%, depending on the situation.  Furthermore, that trends toward the lower end over shorter distances, such as those where HTS cables could be used.  I'm pretty sure nobody has good estimates on what is typically lost on the customer's side of the meter, and even the best combined-cycle natural gas generators top out in the low 60% range for efficiency of power extraction, which doesn't even count the energy used to gather, process and transport the fuel.  Since any further technological improvements in CCNG generators are likely to be incremental at best, the point is that for the time being, Green should generally about reducing fossil fuel consumption rather than reducing overall energy usage.

Do you think that Biden win the election good for LUMN or not ?

I don't think it matters much.  The only possible impact that I can see is in changes to the FCC, and that won't be clear quickly, if it happens at all.  In fact, we may see quite a bit of rhetoric courting Republicans over the next two months, since both Senate seats, for the state that thwarted a lawsuit by destroying voting records, are headed for run-offs.  It's also looking like I will have to reverse my statement from Friday, to go back to saying that Republicans are quite likely to maintain Senate control.  Over the long term, I'll hold out hope that the narrowing of each party's lead in each chamber of Congress will engender new motivation to find consensus and compromise.  For the short term, though, another two months of policy uncertainty can't be good for businesses large or small, and of course, Trump hasn't shown any sign of actually conceding yet. 

Esekla