We have long used a growth-at-a-good-price approach to stock selection, which explains why utilities rarely quality for our Buy List, explains Rich Moroney, editor of Dow Theory Forecasts.

As a group, utilities tend to generate modest operating momentum while also sporting uninspiring valuations. National Fuel Gas (NFG) stands out from the pack; the stock returned 61% last year.

Over the last 12 months, National Fuel Gas’ sales rose 26% and per-share profits 51%. Wall Street expects National Fuel’s growth to continue, with the consensus projecting sales growth of 19% and per-share-profit growth of 32% in the September quarter, followed by respective increases of 10% and 25% in fiscal 2023 ending September.

The natural-gas utility serves about 750,000 customers in Pennsylvania and New York. The utility has seen its share of companywide sales and profits decline in recent years but remains the most stable and least economically sensitive unit.

While S&P classifies National Fuel as a utility, energy operations accounted for about 60% of revenue and more than 80% of profits in the first three quarters of fiscal 2022. The exploration & production unit (38% of revenue, 46% of operating profit) operates roughly 900 wells, mostly in the Marcellus and Utica shale formations in Pennsylvania.

Pipeline, storage & gathering operations (26%, 35%) revolve around nearly 2,800 miles of pipeline in New York and Pennsylvania. Demand for the transit of Appalachian natural gas to regions ranging from the Midwest to Eastern Canada has increased demand for transport capacity. Despite consumer and political opposition to new pipelines for environmental reasons, National Fuel is making progress on its construction initiatives.

At 12 times trailing earnings, National Fuel trades 40% below the median gas utility but 71% above the median energy producer. We don’t recommend the stock for its valuation, though National Fuel seems attractively priced, particularly relative to its growth (price/earnings-to-growth ratio of 0.8).

A Quadrix Overall score of 85 ranks National Fuel better than all but 15% of the stocks in our research universe, and better than all but 8% of utilities. The stock, which yields 2.8% and has raised the dividend in each of the last 52 years, is a Focus List Buy.

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