InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

Get rich from the world’s most BORING stocks

Get rich from the world's most BORING stocksWhen you buy these dependable Steady Eddies, you’ll see why “boring is beautiful.” You’ll fall in love with the 39 “stodgy” stocks currently in my portfolio… because they’ve racked up an average gain of 455%. That’s enough to turn $10,000 into a staggering $55,500! These “yawners” can slam the door on your money worries. Click here to get started now.

 

When the Music Stops: Utilities with Enduring Value

By Richard Stavros on August 19, 2016

With utility stocks starting to correct after hitting all-time highs during this year’s mass investor flight to safety, it’s time to ask which utilities will hold their value best when the music stops.

One possible answer: productivity.

In the upcoming issue of Utility Forecaster, we’ll be taking a look at which utilities are being managed best from a productivity standpoint, since we believe this will likely be a key differentiator of enduring value in the sector.

Productivity has become a central issue for most U.S. businesses, as many firms are failing to fully utilize their resources, which has led to disturbing declines in revenues and profitability in various sectors over the past few quarters.

According to the U.S. Labor Department, non-farm business productivity—the goods and services produced each hour by American workers—decreased at a 0.5% seasonally adjusted annual rate in the second quarter, as hours worked increased faster than output. This was the third consecutive quarter of falling productivity, the longest streak since 1979.

And long before this latest losing streak, productivity growth was already tepid, averaging just 1.3% annually from 2007 through 2015, according to The Wall Street Journal.

At the same time, there has never been a perfect correlation between business investment and future returns, as corporate managers don’t always identify the most productive areas in which to expand their businesses.

Although regulated utilities have guaranteed returns on their investment, which provide for steady earnings, there have certainly been times when utilities mismanaged their businesses.

For example, some analysts argue that the reason for weak electricity demand in many service territories is that some utilities overbuilt during the housing bubble, which provided a demand signal that was ultimately illusory.

Nevertheless, companies that fail to reinvest in their businesses will find themselves at a disadvantage when the business cycle turns, while those that continue to effectively allocate capital typically have a competitive advantage.

From this standpoint, utilities are way ahead of other sectors in pursuing this fundamental business operation that helps grow future earnings.

From Macro to Micro

For the past few years, we’ve used big-picture trends to help identify which utilities are the best investments in the sector.

But with valuations still near all-time highs, and utilities issuing more debt and equity to support acquisitions and upgrades, the growth picture has clouded. And there is a real risk that credit quality could decline or growth in earnings per share could flatline.

That’s why we also look at companies from a fundamental perspective, particularly when it comes to financial stewardship. To that end, those utilities with the greatest productivity are best positioned to deliver a strong return on their investments.

Right now, our proprietary models still show most utilities trading near full value.

But as the broad market exits the fear trade, the divergence between how companies are managing their balance sheets and investing for future growth could prompt investors to re-rate each firm accordingly.

For subscribers, we highlight one utility that is showing superior productivity compared to its peers.


You might also enjoy…

 

Boost Your Annual Income By As Much As $12,036

We’ve uncovered a unique income-boosting opportunity that allows you to collect up to $1,003 a month in extra government cash. 

This plan is available to everyone over the age of 18.

The amount you make isn’t dependent upon your marital status…

How much money you currently make…

Or even how much money you made in the past.

Best of all, because of the way Uncle Sam views the money that comes from this plan, your current—or future—Social Security benefits won’t be affected, either. 

There’s still time to get your name on the list for the next check run. 

I’ll show you how here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.