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Executive Summary

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 Holding 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.

Certainly not all the details were favorable. Even the best run electric and gas utilities saw pressure from global trade tensions on their sales to industrial customers. Weather and storm activity wreaked their usual havoc. And our communications companies faced accelerated declines in legacy phone and pay television businesses.

But overall, these results paint a picture of financially strong and growing companies ready for what comes next in the global economy and stock markets. That’s the best possible reason for holding onto them, while harvest or (better) reinvesting their rising dividends.

Strong numbers and positive guidance earned increased recommended buy prices for several favored stocks. Those include Conservative Focus stock ONEOK Inc (NYSE: OKE) and Aggressive Focus Atlantica Yield (NSDQ: AY).

For the Portfolio stocks trading above recommended entry points, however, the best policy is patience. That’s to wait on a dip to the buy-up-to prices we show in our Portfolio tables and the Utility Report Card. Or, if you’re particularly aggressive, place buy limit orders at the “Dream Buy” prices I highlight in the Portfolio section.

It’s true many stocks haven’t traded at bargains levels for some time, and some are priced high enough to consider taking profits. But as we’ve seen over and again the past few years, even the strongest companies occasionally fall out of favor. Strike then and you’ll lock in a windfall.

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