Roger S. Conrad

Fair value is always in the eye of the beholder. But energy investors are best advised to follow our one simple rule for picking takeover targets: Only buy companies with the strength to thrive on their own.

The fear the US/China trade deal might not get done is again roiling the global stock market. So far, however, selling hasn’t done enough to budge top quality utility stocks from their still historically high valuations.

High prices alone never kill bull markets. But it’s all too easy to disappoint the lofty investor expectations they represent. And risk is never higher than when companies are reporting quarterly earnings and issuing guidance.

This month’s Utility Report Card highlights my analysis of results for the roughly two-thirds of our coverage universe that’s responded to date. The really good news is that so far Portfolio recommendations are sticking to calendar year 2019 guidance, even in cases where weather and non-recurring events have depressed quarterly bottom lines.

Portfolio high grading in good times will prevent portfolio-wrecking losses when the macro picture worsens. We’ve had Aggressive Holding Suez (Paris: SEV, OTC: SZEVY) on a very short leash the past few months. Now, thanks to strong first quarter numbers and guidance, it’s again a buy.

After a blazing first quarter 2019, shares of best in class utilities and essential services companies have largely stalled over the past month. Not only is the Dow Jones Utility Average within a point of where it was when the April issue went to post. But all month long, it never strayed more than a couple percentage points in either direction.

Conservative Holding Algonquin Power & Utilities (TSX: AQN, NYSE: AQN) has roughly $5 billion in market capitalization. It’s sparsely represented in indexes and individual investors hold nearly half the float. The result is few US-based analysts cover the stock, despite the fact that US operations generated 95 percent of the company’s 2018 revenue.

Until last month, Consolidated Communications (NSDQ: CNSL) was an anomaly in the wireline telecom business: The only company in the sector that had not cut its dividend at least once, dating back to the July 2005 initial public offering.

But starting this summer, Consolidated will pay no dividend, using the savings to pay off debt. I highlight the details in the April 29 Income Insights “Comcast’s Big Gains are its Smaller Rivals’ Pain".

Last September, I highlighted opportunities resulting from what was then a great deal of turbulence in emerging markets. By December, the selloff had finally caught up to the US market. For the highest quality global utilities like Enel SpA (Italy: ENEL, OTC: ENLAY), however, the bottom had been in since October. As a result, they were havens during the worst of the selling and went on to rally strongly in the first quarter.