Duke: Selling for Peanuts

09/11/2002 12:00 am EST

Focus:

Roger Conrad

Founder and Chief Editor, Capitalist Times

Perhaps no advisor has faced a more difficult operating environment over the past two years as Roger Conrad.  In addition to traditional utilities, his Utility Forecaster focuses on the telecom and energy sectors–two areas that have been plagued by corporate scandals. Yet to his credit, he has done an excellent job of keeping his readers well informed and well positioned through this difficult period.  Here’s his latest Growth Stock highlight.

Duke Energy (DUK NYSE) is among the energy group’s surest long term plays–and the stock sells for peanuts. The low point of any sector decline is when the strongest company finally gets taken down. The resulting panic and capitulation, however, often sow the seeds for recovery, provided the fallen leader is still solid. That’s certainly the case with suddenly cheap Duke Energy.

Resisting energy’s downdraft for months, Duke was at last pulled down in late July. The catalyst was panic concerning the SEC investigation of its trading operations, compounded by analyst worries of concealed weakness in merchant energy, concerns of credit rating cuts and shareholder suits accusing management of misrepresentation. The stock crashed below 20 in a few days. Since then, Duke has investigated its 750,000+ trades for the SEC. The result was that just 66 used the entirely legal method of ‘round-turn’ trading to pump up volume. Further, the traders involved were fired, making the possibility of crippling sanctions against the company ludicrous. 

Second quarter earnings beat expectations with trading operations solid despite catastrophic business conditions. Duke has continued its conservative acquisition strategy to build growth, and its credit rating remains the highest of its group, with S&P assessing its outlook as stable. The good news has pushed the stock back toward the upper 20s.  But you can still buy the stock basically for the value of its regulated operations, getting 30,000 megawatts of low-cost independent power plants and industry leading operations in energy trading, gas supply, and processing for nothing. Yielding more than 4%, Duke’s a great long-term buy up to 32.”

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