Roger S. Conrad

With the virus still spreading and shutdowns continuing, forecasting COVID-19’s eventual damage to human health and the global economy is still a matter of conjecture, making it difficult for management teams to set guidance for the rest of 2020.

However, Q1 numbers and guidance, to be released over the next several weeks, will be absolutely critical to making good decisions, particularly where dividend safety is concerned.

Over the past two weeks, the Dow Jones Utility Average has recouped nearly two-thirds of its initial bear market plunge. That’s the sector’s most dramatic two-week rally in history, following its most brutal one-month selloff.

Along the way, we’ve been able to buy every Portfolio stock below its maximum entry point. And 30 have traded under “Dream Buy” prices, levels only reached under extreme conditions like those we’re living through now.

The question now is will utilities’ current “V” shape recovery continue? Or will stocks follow the pattern of every previous market and at least retest the lows?

On the positive side, the spread of COVID-19 appears to have eased up in some hard-hit areas, particularly China. That’s raised hopes the world can go back to work in the relatively near term.

Falling oil prices and economic weakness have historically been bad news for wind and solar power. But this time around, they’re shaping up bullish for global electricity producer Enel SpA (Italy: ENEL, OTC: ENLAY).

Since the March issue, I’ve sent Conrad’s Utility Investors readers three action Alerts. Throw in the three Income Insights and two Utility Roundups and that’s quite a bit of extra homework.

What a difference a month makes. In March, I noted most of the nearly 200 companies we track posted solid 2019 results, holding out the possibility economic fallout from COVID-19 would create casualties.

Take your pick of the S&P 500, Dow Jones Utility Average, or any other sector index and the chart tells the same tale: Stocks’ rebound from late March lows has reached a level that in all previous bear markets has signaled rally’s end.

It’s been roughly six weeks since the Dow Jones Utility Average’s most recent all-time high. At one point, 25 Conrad’s Utility Investor Portfolio stocks traded below their designated “Dream Buy” prices. The buying opportunity we saw last month for these best- in-class companies is a powerful testament to the value of portfolio discipline and patience. 

It’s still early days for US COVID-19 fallout. And most electric companies have yet to issue guidance. But so far, the US power industry is showing typical resilience in tough times.

That means future selloffs in the ongoing bear market are buying opportunities for best in class electric utilities, not a reason to sell.

Around the world, people are staying home to combat the deadly spread of COVID-19. That’s catastrophic for certain industries but, as always in capitalism, there are also winners.

Earlier this month, the buyout of the former Pattern Energy appeared headed for failure. But then came the COVID-19 market crash, and everything changed.