Exerpts from Interview with Mr. Miller November 7, 2008 where he makes the call on Dynegy, Inc., Mirant and Reliant.
Miller has worthy points to make about the weakness of energy managers in emerging economies (they all will get acquired at distress-rate prices or go bust) and about the need of winners to “establish a bona-fide presence in their fields, and not just trading desks.”
* Here is what he tells me from the heart, if not the lungs: “I own the independent power producers due to coming consolidation. I own the utilities due to dividend yield, solid cash flows and defensive position,” he says. Top takeover candidates at decent multiples include Reliant Energy (NYSE: RRI, Stock Forum) and Dynegy Inc. (NYSE: DYN, Stock Forum).
* “I own the gas pipelines due to dividend, solid cash flows and defensive position.”
* I don't own any E&P stocks, too early to buy, let them slide further. I have re-loaded my portfolio in this direction and would rather sit on 5% to 6% dividend yields with upside of IPPs (independent power producers again) as equity kickers.
* “Finally, outside of AES (AMEX: AES, Stock Forum), which I own, I don't own any stocks that have significant emerging market exposure. Capital will not flow in these sectors, thus stranded assets, businesses and other issues will start to arise.”
Miller’s short list of worthy candidates include pipelines/processing, such as Southern Union (NYSE: SUG, Stock Forum), Williams Pipelines Partners (NYSE: WMZ, Stock Forum) and El Paso Energy (NYSE: EP, Stock Forum). These companies control the majority of gas pipeline, storage and processing facilities in much of North America, he says.
In the area of merchant power, Miller has Calpine, NRG (NYSE: NRG, Stock Forum) and Mirant (NYSE: MIR, Stock Forum) on his screen. “These are top acquisition candidates in the unregulated sector, likely to be bought at acceptable multiples.”