VIDEO: Inside “The Income Zone” With Robert Rapier

I’m John Persinos, editorial director of Investing Daily. Welcome to my latest video presentation for Mind Over Markets.

I’m taking a break from the market’s daily roller-coaster action to interview my colleague Robert Rapier, chief investment strategist of Utility Forecaster, Income Forecaster, and Rapier’s Income Accelerator.

In our discussion, Robert provides timeless advice on how to generate robust and steady income in up, down or sideways markets. Below are edited excerpts; my questions are in bold.

Utility stocks are subject to interest rate risk and elevated rates have weighed on the sector. The Federal Reserve has hiked interest rates to curb inflation, but the central bank has hit “pause” on monetary tightening and we should get rate cuts later in 2024. Under these conditions, what’s your prognosis for utility stocks this year and beyond?

These things are all cyclical, right? During a typical business cycle, different sectors historically perform differently during the different cycles.

Utilities have faced interest rate headwinds, but I think when it’s clear that the interest rate hikes are over, we will see utilities begin to outperform.

We all know about renewables such as solar, wind, and geothermal; “green” alternatives are obvious and they get plenty of media attention. But what about stealthier technological developments that deserve attention from investors?

There are a lot of themes that should perform well if one takes a long-term approach. I am particularly fascinated by artificial intelligence (AI), and how that will all shake out. There are a lot of competitors in this space, and it’s not clear to me what the best path to monetization will be.

Thirty years ago, I thought biotechnology was a great long-term play, and I invested accordingly. My biotech holdings have outperformed everything else since then. But looking forward to the next 30 years, I think AI, robotics, and cloud computing will be important themes. And biotech still has a long run ahead.

One more area that is going to become increasingly important, which isn’t like the others I mentioned, is water. Freshwater is becoming scarcer, and companies that provide that should do well. That would be a more conservative play on the future than the sectors I mentioned previously.

I’m particularly interested in energy storage. Do you see any under-the-radar opportunities in that segment?

It’s certainly a topic that has fascinated me during my career. I have worked on a couple of unconventional energy storage projects in the past. Energy storage is really the holy grail that will enable intermittent renewables to power a much greater share of our energy demands.

I think the scalable, widely deployable solution is going to end up being batteries. There are some novel battery chemistries that are ideal for stationary storage. Some of these are heavy batteries that are entirely inappropriate for mobile applications, but they are cheap solutions for stationary utility-scale storage. So far, there are a lot of competitors, but nobody has yet taken control of market share in this space.

Due to worries about climate change, nuclear power has made a remarkable comeback. What’s the best way for investors to profit from the renaissance in nukes? For example, uranium producers have been thriving as the price of “yellow cake” soars.

If we are going to get serious about curbing carbon dioxide emissions, nuclear power has to be ramped up. But southeast Asia is really the global hotspot in emissions, so that’s where they need to be retiring coal plants and building nuclear plants.

There are a lot of utilities that use nuclear power, and a lot of companies that provide services for designing and building nuclear power plants. But that’s always a small part of the business of these companies.

As you allude to in your question, if you really want a pure play on nuclear power, look to the established producers like Cameco (NYSE: CCJ), whose stock has already risen by more than 200% in five years.

Although far from vanquished, inflation has dramatically cooled and the Federal Reserve is expected to cut rates this year, if not in June then in September. Won’t the first interest rate cut boost the utilities sector?

Yes, I think the start of rate cuts will be the catalyst that sparks a recovery in the utility sector, although the natural gas sector should benefit as well.

Contrarian investors should focus on utility stocks right now because they will bounce back and rise to lead all sectors at some point.

A lot of income investors focus on current yield. Explain why a history of dividend growth is important, too.

Long-term dividend growth shows that a company is well-managed and can support the income needs of investors.

But it’s not just dividend growth. You have to ensure that the growth is sustainable, too. Some companies have supported dividend growth by adding debt, and if that’s a pattern that continues, eventually it will lead to trouble.

You want to find companies that are supporting dividend growth by growing cash flow. That’s a sign that you have a winner that you can put in your portfolio for the long haul.

Thanks for your time.

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John Persinos is the editorial director of Investing Daily.

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