Utilities

[Non_Comformist]

One thing I have noticed in my recent research is that many of the utilities contained in the S&P 500 appear to be undervalued using P/E, 5 year earnings growth, operating cash flow and dividend payment history.

I believe with inflation fears Utilities become less desirable, as far as short run outlooks are concerned. I may be incorrect.

Is there anything else that is specific and non transitive about Utiilities as a whole which would result in a permenant undervaluing as compared to other companies.

[adios]

To me utilities should be evaluated on a case by case basis. The Enron bogey man and the problems with utility companys in California has made this sector look a lot riskier to investors.

[Non_Comformist]

I went through them all and as you stated a few appeared to be too uncertain. However I was able to find 4-5 with increasing earnings, increasing dividend with no interuption and comparitively solid B/S (normal debt ratio's of other industries do not apply).

My thinking is that this is either left over concerns which you stated or perhaps near term interest rate/inflation fears. Neither of which bother me much when compared to their current value.

[ericd]

By and large the market tends to assign a multiple by sector. For example, Utilities might be 10, Oil 20 and Technology 30. Once an industry matures (ie technology some day) the multiple tends to stablizes. Note this applies to "good" companies. All bets are off when a company is in trouble. Additionally, the sectors are constantly reviewed to be sure that the conditions that caused the current multiple to be assigned still apply.

The large brokerage houses monitor this constantly. For example, if Shell is trading at a 15 and ExxonMobil at a 25 then the "pros" will go long Shell and short ExxonMobil. This tends to cause the market to self correct. Since they are all doing this the gap in the example is overstated and in reality you would find multiples in the range of 19 to 21.

[GeorgeF]

If energy costs stay high it will crimp profits at chemical companies and utilities that use alot of gas / oil.

If you believe energy prices will come down then utilities should be a good idea.

Ameren AEE uses some coal and nuclear, so it might be insulated a bit.

[PairTheBoard]

What were those 4-5 nonconformist? Also, What did you think of XEL?

PairTheBoard

[Non_Comformist]

I am currently buying 4 on an ongoing basis.

FPL FPL group
PGN Progress energy
SO Southern Company
CEG Constallation Energy

all pay dividends and have a PE lower than 15. Let me know if you have questions

As for XEL. I really try to follow the principles of the Bejamin Graham as much as possible and have a strong reason (whether wrong or right) for straying. XEL has had shrinking revenues the last five years, its PE for the last 3 year average EPS is not that attractive and its dividend payment has been inconsistent and decreasing. For those reasons I pass.

I think if you look at the four above and compare it will highlight exactly what I look for.

Of course the future may prove me wrong but one thing I try to do is have a written anaylsis of why I decided on a stock, the numbers, my reasons, potential risks, etc. This will hopefully allow me to review those decisions that didn't go as planned and allow me to learn where I can.

[StellarWind]

[ QUOTE ]
Is there anything else that is specific and non transitive about Utiilities as a whole which would result in a permenant undervaluing as compared to other companies.

[/ QUOTE ]
Many utilities face an ongoing long-term threat of erosion of the monopolies on which their businesses are founded. The new competition takes a million forms and is often unrecognized even while it's happening.

Any utility investor who has not devoted major attention to this subject needs to take another look.