Conrad: Charged Up Buys
05/23/2003 12:00 am EST
"The energy utility industry will recover long before still-pessimistic Wall Street expects," says Roger Conrad, editor ofThe Utility Forecaster and contributing editor to Personal Finance. "The best plays are companies with the ability to ride the recovery but the stamina to survive if there's a relapse. Recoveries don't announce themselves until they're well underway and the good news is that indications are the worst is behind us." Here, Conrad talks about his favorite stocks in the unregulated side of the utility industry.
"Cinergy (CIN NYSE) is a regulated utility that serves Cincinnati and other parts of Ohio, parts of Indiana, and they have been able to maintain a merchant energy business on a fairly profitable level throughout this entire bear market, by prudently hedging themselves, not taking un-due risks, and focusing on their regulated business. And now that we seem to be coming out of the poor economy, which should improve over the next year, but as we come out of this I think the company will begin to grow again. So you've got a yield around 5% and some real potential for growth as well.""There is a company called CMS Energy (CMS NYSE) that I have followed for a long time; the stock has been a disaster. However, the company has re-oriented itself. It was involved in a lot of energy trading and other ventures that apparently the CEO didn't even know about. He has since been replaced and they have been trying to repair their corporate image, sell a lot of assets, pay down their debts, and they seem to be succeeding in these efforts. The common stock has not been particularly exciting to me. I like to get paid while I am betting on a recovery, so I am recommending preferred stocks issued by the company, which yield close to 10%. There is a CMS preferred L and a CMS preferred B."
"The third idea is the most aggressive. It's a Canadian royalty trust called Enerplus (ERF NYSE). It produces a lot of gas. Basically what they do is produce energy and then you are given cash back. The dividends are the cash flow coming back in from the sale of those commodities. The dividends tend to fluctuate. When prices rise, of course, dividends rise and that's what's been happening lately. And when prices fall, the dividends come down. This volatility makes some people uncomfortable. Right now this trust yields about 15%, based on the latest dividend increase. If energy prices drop and they reduce the dividend, it's from a very high level and already discounted in the stock price. If energy prices don't drop, then you've made the lucky draw. This isn't for someone seeking steady income but it's a good bullish bet on energy prices."
"Another group of investments involves long-haul growth. In this area, the growth conditions now and for the future are in markets far from Wall Street. Asia is one of my best prospects. For investment ease, I like the mutual funds of Matthews International, including the conservative Growth and Income Fund (MACSX) as well as the Korea Fund (MAKOX) and China Fund (MCHFX). I also have a renewed enthusiasm for Brazil. And as the best investment in Brazil, I like the Brazil Fund (BZF NYSE), which is trading at an attractive discount."