James Abate, Chief Investment Officer, Centre Asset Management
Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE) are three top picks from this world reknown energy sector investor.
James A. Abate, MBA, CPA, CFA, is the Chief Investment Officer of Centre Asset Management, LLC, and the Portfolio Manager of the firm’s American Select Equity and Global Listed Infrastructure strategies.
He also serves as the firm’s Managing Director and as the President and Trustee of the Centre Funds.
Prior to founding Centre Asset Management, Mr. Abate was Investment Director, North America, for GAM Investments.
Prior to GAM, Mr. Abate served as Managing Director and Fund Manager/Head of U.S. Active Equity at Credit Suisse Asset Management responsible for its U.S. Select Equity Strategy and stable of Global Sector Funds.
Mr. Abate has achieved Standard & Poor’s Funds Research AAA rating, received numerous “Category King” mentions in The Wall Street Journal, is the recipient of the Refinitiv Lipper Fund Award for Best U.S. Equity Fund, as well as multiyear Investment Week award nominations.
Prior to transitioning to asset management, he was a Manager in Price Waterhouse’s Valuation/Corporate Finance Group, and served as a commissioned officer in the U.S. Army and Reserves, achieving the rank of Captain.
Mr. Abate holds a B.S. in accounting from Fairleigh Dickinson University, an MBA in finance from St. John’s University, and is a visiting Adjunct Professor in the graduate and honors academic programs at the Zicklin School of Business, Baruch College.
He is a contributing author to several John Wiley published books, Applied Equity Valuation, Focus on Value, Short Selling and The Theory and Practice of Investment Management; has written articles that have appeared in The Journal of Portfolio Management, Investment Week, FT Investment Adviser, The Wall Street Journal and Mergers & Acquisitions, among other publications; and his writings with Professor J. Grant, Ph.D., on the economic value added approach to security analysis have been adopted by the CFA Institute candidate study programs.
Mr. Abate is a former member of the editorial advisory board of The Journal of Portfolio Management.
In this 4,060 word interview, exclusively in the Wall Street Transcript, Mr. Abate details the basis for investment in Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE).
“I’d like to highlight is that we continue to be big believers in the income and capital appreciation opportunities in oil and gas pipelines and storage in the U.S.: Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE).
When you look at natural gas pipelines in particular, and the fee growth generation of these companies in relation to the regulatory burden of trying to build any new capacity expansions or new pipelines in the U.S., which is just so crippling — these companies have, in essence, given themselves a very wide moat to competition.
Also, people underestimate the importance of Europe as an export market for natural gas. Because we had such a mild winter last year, there’s an incredible complacency in place in that we didn’t get the same kind of volume impact to growth from the export of liquified natural gas to Europe after the destruction of Nord Stream last year.
The growth in liquefied natural gas is significant and is allowing these companies to be part of that transportation growth process.
If you look at the dividend yield of these pipeline companies, all are near or in excess of 6%. From our perspective, all three of these companies represent exceptional opportunity, both from an income and a capital appreciation potential, driven by opportunistic and sustainable growth.
Many of these stocks had a significant drawdown in 2020, as most of the energy sector did, which had a shake-out of most non-energy-related investors.
However, you’re starting to see a continuation in a lot of the attributes that even generalist investors find attractive in the stocks, in terms of growth and stability of fee income, as well as distributions adding to their appeal.”
Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE) are not the only high dividend investments that Mr. Abate advocates.
“One of the names that we’ve been recently adding to is Enel SpA (OTCMKTS:ENLAY) in Italy.
This is a company that’s been part of the portfolio for a while but we’ve continued to add to our position size as the opportunity has leaned more favorably.
The stock now represents tremendous value to us at a 6.4% dividend yield.
The company is doing an excellent job in smoothly transitioning itself with regards to a complete coal exit by 2027.
Half of its capital expenditures —capex — budget is geared towards renewables, but, at the same time, its fossil fuel business is highly profitable.
The core business continues to be in Italy, the Iberian Peninsula, as well as Latin America.
From our perspective, this is a company with a substantial renewables pipeline, with a continuing legacy fossil fuel business that is becoming even more profitable, and one that is well geared towards the changing environment in power generation globally, and is taking advantage of its dynamism.
Another name that we like is Mercury NZ (OTCMKTS:MGHTF) in New Zealand.
This is a new name for us added to the portfolio. It’s an excellent business in that it’s broad-based in its power generation from hydro to biofuels, with a near-monopoly type status — a very significant moat — with regard to its business.
That moat aspect is really key and shared by most of these power generation businesses, not just Mercury, because of the regulatory environment, and even those that are operating within the unregulated markets here in the U.S. as well as Europe, because of the significant capital intensity creating significant barriers to entry.
Furthermore, power generation investment is timely as we’re seeing an inflection point in profitability as natural gas prices have stabilized at lower prices.”
As US based businesses, Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE) have a built hedge against geopolitical events spiraling out of control.
“Russia, who had the opportunity to conduct its operations in a more meaningful way early in the conflict and settle it very quickly, has chosen to continue its limited operations, which has done nothing but prolong the war, and their inability to accomplish their objectives has led to the current stalemate.
It leads to a high degree of complacency and confidence on both sides, which historically has never been a good thing from a war perspective, because it raises the potential for escalation from forces inside Russia and NATO members due to growing frustration on progress.
So that’s first and foremost what we’re concerned about.”
Read the entire 4,060 word interview, and get all the reasoning behind the Kinder Morgan (NYSE:KMI), Williams (NYSE:WMB), and ONEOK (NYSE:OKE) recommendations, exclusively in the Wall Street Transcript, to get all the details.
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