Southern Company a Sell
Number 2 Best Buy Southern Company (NYSE: SO), has been one of our favorite holdings since we launched Global Income Edge in August of 2014. However, the company is currently being investigated by the Securities and Exchange Commission for allegations of mismanagement and fraud in the construction of its Kemper, Miss., power plant. Just last week the New York Times published an in-depth article on the issue.
Southern needed to publish a statement to address the investigation and assure investors that if any wrongdoing is found those responsible will be held accountable. Since they have not issued such a statement we recommend selling Southern Company at this time.
Now is a good time to sell. In the two years since we first recommended it, the stock has risen about 26%, plus it’s been paying a generous dividend all that time. The company’s stock is fully valued and currently trades at an all-time high of about $54 after it shot up 12.5% from $48 in mid-May. Following the conclusion of the investigation and the return of the company’s share price to more reasonable levels we may later come back to Southern.
The Kemper “Clean Coal” power plant has been a major source of both optimism and bad news for the company. The first-of-its-kind coal power plant uses gasification technology to convert the plentiful cheap coal in Mississippi into synthetic gas. This would provide a lifeline to the dying coal industry that has been unable to reduce CO2 emissions.
The power plant, which began construction in 2010, is over two years behind schedule, and is now expected to be fully operational in Q3 2016. The cost of the plant is currently at $6.6 billion, $4.2 billion over its initial budget of $2.4 billion. And now the company is being investigated for outright fraud in the construction of the facility.-—William Romov