Roger S. Conrad

“Unpacking” earnings for key details became a popular catch phrase for analysts during Q2 reporting season. And that’s exactly what I do in this August issue of CUI: Utility Report Card highlights vital signs for the 90 percent or so of coverage universe companies that have turned in numbers and updated guidance, while the Portfolio section focuses on my top recommendations.

I dig deep into results to answer two critical questions. First, are companies still moving in the right direction with strategic plans and balance sheet health? And second, are business developments adequately reflected in share prices, meaning are there opportunities for upside or should we be moving on?

Thirteen months ago, I highlighted AES Corp (NYSE: AES) in this space. Since then, the stock has racked up a total return close to 80 percent. But the best is yet to come for investors in the global power generation and distribution company.

Verizon Communications (NYSE: VZ) was first to prove the potential of 4G wireless. So when rival T-Mobile US (NSDQ: TMUS)—Deutsche Telekom’s (Germany: DTE, OTC: DTEGY) US unit—appeared to take the lead rolling out 5G, many have assumed the company has passed the torch of industry leadership.

Since the July issue went to post, the Dow Jones Utility Average has generally trended higher. The result is the half-year return of less than 3 percent has grown to over 9 percent. One key reason: Solid Q2 results and strong guidance updates issued by the average’s 15 members. That includes this month’s Aggressive Focus stock AES Corp (NYSE: AES).

Announce a headline-worthy M&A transaction and promise meaningful debt reduction and stock buybacks. Then warn of a future unspecified dividend reduction after the close.

It’s still just a bill. And there will be many chances to sink it in the coming weeks, from Democrats’ insistence on moving a much larger package to Republican opposition to any compromise ahead of 2022 Congressional elections.

Our best in class utilities and essential services companies proved their resilience in pandemic-riddled 2020.

I’ve been an adult volunteer for Scouting BSA since my oldest son entered Tiger Cubs almost 20 years ago. So I wasn’t going to pass up the opportunity to accompany my youngest to Philmont Scout Reservation in northern New Mexico earlier this month, my third and likely final trek to scouting’s paradise.

Unlike the highways my oldest son and I took on our cross-country journey in early June, there’s not a lot of connectivity in the backcountry. And I’d never have been able to stay off the grid were it not for the support of Elliott Gue, my partner of more than 8 years at Capitalist Times.

Nonetheless, as with the June trip, I picked up several investment insights I’d like to share with you now.

America’s electric utilities are on track for a 10^th consecutive year of record capital spending in 2021, according to numbers compiled by the Edison Electric Institute.

That’s closely followed by the $70 billion plus the country’s five largest communications companies plan to spend this year, rolling out 5G wireless and expanding fiber broadband connections. And while pipeline construction remains highly contentious in many places, spending on gas and water systems also remains at elevated levels.

The history of utilities is packed with examples of management getting badly burned by investing outside regulated operations. That tends to keep stocks of companies that do at big discounts to their peers, as Southwest Gas Holdings (NYSE: SWX) is at 15.7 times expected next 12 months earnings.