NEE

Publicly traded companies mentioned herein: Berkshire Hathaway Inc (BRK/A, BRK/B), BYD Co Ltd (1211 HK), NextEra Energy Inc (NEE), RWE AG (RWE GR)

Highlights

The presenter is short shares of NextEra Energy (NEE) at $150. Among his datapoints are the similarities to the narrative with [Energy] MLPs just prior to their demise in late 2015, when the view was, “They will never break”. The business model’s viability was called into question in the wake of major declines in many MLPs’ shares and the collapse of oil, as the risk surrounding MLPs’ dependence on raising external capital to pay distribution and dividends was underappreciated. With NEE, “There are a lot of potential problems for a stock that has not seen a decline since 2008, including: valuation issues, interest rate risk, regulatory concerns, competition, and technology-related risk issues”. It is the largest component of every index and mutual fund, so there is a natural buyer there. However, at 6x EV/Sales, and an increasing focus on solar power in key markets such as Florida and California, he is comfortable being short the stock. If his assessment of the setup and timing are right, NEE could face headwinds similar to the forces that drove Europe’s utilities to substantial losses from 2008 through 2013.