It was a dismal final month of what had been shaping up as another good quarter, with a sizable setback in September sending the S&P 500 to its first 5%+ decline since October 2020, notes John Buckingham, money manager, value investing expert and editor of The Prudent Speculator.
Of course, stock prices always are susceptible to downturns, and drops of similar magnitude to the one endured last month have occurred three times per year on average over the past nine decades, so it is not a grand surprise to see equities take a breather.
This is especially true, given the massive advance that has taken place over the past 11 months. Indeed, despite the recent red ink, the S&P 500 has gained 1000 points (more than 30%) since last Halloween.
Pinnacle West Capital (PNW) is a utility that provides electric service to nearly 1.3 million customers via its Arizona Public Service unit. PNW’s owned power plants include the Palo Verde nuclear facility, several coal-fired and gas/oil-fired plants, as well as more than ten solar farms.
The company is targeting to generate 100% clean and carbon-free energy by 2050. PNW shares have seen their ups and downs this year, but EPS in the second quarter surprised to the upside as record-setting temperatures led to increased customer energy consumption.
To be sure, the rates the company charges are regulated, and management was disappointed with recent developments related to certain emissions control investments at its Four Corners Power Plant.
Still, PNW benefits from rapid long-term growth in the Phoenix metropolitan area, while the labor market in Arizona should recover as the pandemic recedes. Shares sport a rich 4.6% yield.
Verizon (VZ) is an integrated telecom company that provides voice and data services to wired and wireless retail, business and government customers. Verizon differs from some of our other Communications Services holdings in that the company is focused almost exclusively on the delivery of content and has not branched out into content generation itself. V
erizon’s vast network makes it high-ly attractive to all types of internet and telecom service subscribers, while it has avoided some of the missteps its competitors have made in content acquisition.
None of this is to say that VZ doesn’t have risk. It certainly does, chiefly with its nearly $170 billion of long-term debt (3.2% avg. coupon with a maturity of 13 years).
Yes, the infra-structure that VZ is installing is wildly expensive, but it has long-term value, especially as the quantity of data that moves over networks each day exceeds 2 exabytes (22 million DVDs of data per hour). With a forward P/E ratio near 10 and a 4.7% yield, we think VZ is a bargain.
