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Issues

While We Wait on Results, Focus on Quality

By Roger S. Conrad on Jul. 10, 2020

Just how much damage is Covid-19 fallout doing to corporate earnings, dividends and balance sheets? We’ll get our best indication yet over the next month or so, as the vast majority of coverage universe companies report calendar Q2 results and update guidance.

The good news is regulated utilities appear to be tracking the expectations management communicated during Q1 earnings calls. Conservative Holding Sempra Energy (NYSE: SRE) in late June actually raised the mid-point of its 2020 earnings guidance from $7.10 to $7.50 per share.

In a “V-Shape” Recovery it’s Still Critical to Stay Selective

By Roger S. Conrad on Jun. 9, 2020

In first half 2020, COVID-19 fallout triggered the sharpest global economic and stock market plunge on record. Now relaxing of pandemic control measures has raised hopes for an equally dramatic recovery the rest of the year.

China was first hit by the virus and first to take control of its spread. And while certainly not back at 100 percent, its economic rebound is picking up speed.

That’s not only good news for Aggressive Holdings China Mobile (HK: 941, NYSE: CHL) and CLP Holdings (HK: 2, OTC: CLPHY). It also bodes well for durability of green shoots we’re seeing in America, including signs of steadying power demand reported by Utility Report Card electric utilities.

Q1 Earnings: First Brush with COVID-19 Fallout

By Roger S. Conrad on May. 11, 2020

About nine of every ten Utility Report Card coverage universe companies have now reported Q1 earnings and updated guidance. Takeaway number one: Even among essential services providers, COVID-19 fallout varies greatly.

Every earnings season my first priority for analysis is the Portfolio. Despite the unprecedented uncertainty, I’m happy to report the vast majority of recommended companies were able to issue meaningful guidance. And not only that, the updated forecasts are by and large in line with their expectations three months ago.

That’s truly extraordinary, considering the global economy has suffered its most dramatic setback since the Great Depression of the 1930s. There’s no guarantee even the best in class of essential services won’t ultimately succumb, if the big picture gets cloudy enough.

Dividend Safety is the Name of the Game

By Roger S. Conrad on Apr. 13, 2020

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.

Utilities: Where the Real Havens Are

By Roger S. Conrad on Mar. 10, 2020

From shuttered schools and cancelled events to disrupted supply chains, it looks like COVID-19—the coronavirus—is only starting to wreak havoc on the global economy. The big questions for investors: Where will the blows hit hardest and what if anything will be spared.

The market’s wild recent action is basically from bets being placed on the answers. So far, US Treasury bonds are in the winners’ circle. The yield on 10-year notes slipped to just 66 basis points at one time last week.

A Big January But Conservative is Key

By Roger S. Conrad on Feb. 10, 2020

For the eighth year in the past 10, utility stocks finished January in the black. Every time but 2015, they finished the year that way, including a 27.3 percent boost in the Dow Jones Utility Average for 2019.

Conversely, you’d have to go back to 1987 to find a year when a strong January was followed by a sector selloff later on. Every other major DJUA decline was instead preceded by a first month selloff including 2008, 2002, 2001 and 1994.

A big January is therefore a favorable portent for our returns in 2020. So are the calendar Q4 earnings and guidance updates we’ve seen so far for Utility Report Card coverage universe companies, highlighted in the comments of this month’s table.

Looking for Loaded Laggards

By Roger S. Conrad on Jan. 12, 2020

It was a great year for utility stocks with the Dow Jones Utility Average returning 27.3 percent. It was also the best yet for our loaded laggards strategy: Conservative Holdings returned 35.1 percent, Aggressive Holdings 31.2 percent and the Top 10 DRIPs 36.5 percent.

One key catalyst for our outperformance was a spike in investor interest for anything to do with renewable energy. We also mostly eschewed stocks with historically valuations and successfully avoided companies with weakening underlying businesses.

A Stock Picker’s Market for Value

By Roger S. Conrad on Dec. 9, 2019

Now more than ever, it’s a stock picker’s market for utilities and essential services.

Last month, the Dow Jones Utility Average basically ran in place. But top-performer AES Corp (NYSE: AES) returned 10 percent, while the biggest loser Public Service Enterprise Group (NYSE: PEG) shed 5 percent.

The difference maker was investor expectations. AES beat a relatively low bar with third quarter earnings and updated guidance. Public Service failed a somewhat higher one, despite another solid performance at its core New Jersey utility.

AES is also a leading global adopter of renewable energy technology, including battery storage. And its 90 percent two-year total return—70 points better than the DJUA—was in large part simply closing the gap with sector leaders like NextEra Energy (NYSE: NEE).

Utility Earnings and the Burden of High Expectations

By Roger S. Conrad on Nov. 11, 2019

It was another strong quarter for the nearly 200 essential service companies in our Utility Report Card coverage universe. Of the 95 percent or so reporting so far, only a handful of small telecoms failed to demonstrate underlying business strength.

My number one rule in any environment is to avoid stocks and bonds of companies with weakening underlying businesses. If things are going poorly now, how bad will they get when the economy really slows and/or the cost of capital rises?

Aggressive Hoding Suburban Propane Partners (NYSE: SPH) has yet to report its fiscal fourth quarter. But each of the 38 other CUI Portfolio recommendations reported numbers that either met or beat management’s previous guidance.

Utilities To Triple Growth in 2019-20, Not All Will Advance

By Roger S. Conrad on Oct. 7, 2019

Wall Street consensus projects utility sector earnings growth will reach 6 percent in 2020. That’s triple this year’s anticipated 2 percent.

Accelerating sector growth is in marked contrast to diminished expectations for most industries. But even more impressive is how well insulated the primary drivers are from the macro environment.

For example, many companies will get a boost because they no longer have to issue equity to compensate for lower cash flow due to reduced tax pass throughs. They’ll get another lift from the massive decline in corporate borrowing rates since the start of 2019.

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ABOUT ROGER CONRAD

Roger S. Conrad needs no introduction to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. Roger b