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VK (vkaminski@aol.com) sent you this article from money.com.
===== These five electric utilities are undervalued and under-appreciated by analysts. But they offer superior long-term returns. http://www.money.com/money/depts/investing/sivy/archive/010518u.html Click the above URL to read the HTML version of this story By Michael Sivy The United States is experiencing a small-scale energy crisis, with soaring oil prices and shortages of electricity on the West Coast. The prospect of urgent exploration has boosted the shares of oil and gas producers, as well as the stocks of oil-service companies. Similarly, the shares of companies that build electrical generating plants and oil refineries have also been strong (I recently featured Fluor, one of those companies -- see " Construction project "). But other sectors -- including electric utilities -- have been hurt by all the energy turmoil. At the simplest level, many electric companies rely on oil and gas for fuel. But they have also suffered from fears that the West Coast power shortages could spread to other parts of the country. In fact, the Dow Jones Utilities index is down slightly since April, even though the Dow Industrials are up more than 15 percent. Nonetheless, electric companies remain a worthwhile choice for many investors. Including utilities in a portfolio of growth stocks reduces volatility. Conservative investors will also appreciate the income that utilities provide -- and the benefits of rising dividends. When you buy a bond or a preferred stock, you lock in a certain level of return. But most electric utilities offer dividend growth -- even 5 percent and 6 percent a year will keep you ahead of inflation and eventually outpace the return on bonds (see " Selecting stocks for income "). One of my top utility picks over the past year has been Duke Energy , an electric company based in the Carolinas. In addition to having a well-run local business, Duke has profited enormously because one of its subsidiaries provides power to the California market where electricity prices are soaring. As a result, the stock has gained more than 50 percent since I first recommended it last summer. I still think Duke has attractive long-term prospects, but obviously it's not as good a buy as it was a year ago. Where are today's best values in the electric utility sector? For the answer, I turned to the Leuthold Group, a value-oriented investment advisory firm in Minneapolis that regularly does a quantitative screen for stocks that are undervalued because they are out of favor. Of the 53 stocks the most recent screen identified, 10 are electric utilities. Of those, I've winnowed out five that have solid finances and offer projected earnings growth of 5 percent or more over the next five years. In addition, these electric companies have modest P/Es, based on this year's estimated results. The five include DTE Energy at $44.70 a share. The parent company for Detroit Edison is in the process of acquiring MCN Energy, a Michigan gas company, which could boost the combined firms' long-term earnings growth. In the meantime, DTE pays a 4.6 percent yield and trades at a 12.5 P/E. FirstEnergy , the holding company for Ohio Edison, is in the middle of a complicated attempt to acquire GPU, and uncertainty about the deal has depressed the stock. Whether it goes through or not, at $29.90 a share, FirstEnergy offers a 5.1 percent yield and a 10.5 P/E. OGE Energy is the holding company for Oklahoma Gas & Electric. At $22, the stock offers a 6 percent yield and an 11.7 P/E. Pinnacle West Capital , parent of Arizona Public Service is expanding its generating capacity in the Southwest. At $49.50 a share, this growth-oriented utility pays a 3 percent yield and trades at a 13 P/E. Finally, Potomac Electric supplies power to Washington D.C. and the surrounding area. The company is acquiring the Delaware utility Connectiv, in a move that should enhance long-term returns. At $22.30 a share, Potomac Electric carries a 4.4 percent yield and an 11.9 P/E and should grow as long as Washington keeps expanding. Originating IP address: 152.163.207.213
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