Duke: Conrad's Energetic Choice
01/03/2003 12:00 am EST
Perhaps no advisor has faced a more difficult environment in recent years as Roger Conrad. In addition to traditional utilities, his The Utility Forecaster focuses on the battered telecom and energy sectors. Despite these difficulties, he has done a remarkable job of keeping investors well positioned through this period. He turns to Duke Energy for his top pick.
"In mid-December, Duke Energy (DUK NYSE) saw its ratings outlook changed to negative by S&P, which cited weak market conditions. Ironically, the Carolinas-based company has just had what I consider its finest hour, reconnecting in a little over a week the 1.3 million of its 2 million-customer base that lost power during the worst storm in its history. Amazingly, the utility completed the reconnection in little more than half the time it took to restore the roughly half as many customers lost during Hurricane Hugo, up to then its worst crisis.
"Duke's earnings have been volatile this year, due mainly to extremely poor conditions in the power market and the evaporation of energy trading volumes. But the company has continued to cut costs and debt. And it appears to be nearing an amicable deal in California over power sales and potential refunds as the Federal Energy Regulatory Commission tries to wrap up the case by March 31, 2003.
"Looking ahead, earnings should explode to the upside as the power market works its way back to health over the next 12 months. In the meantime, with a payout ratio of just 64.7% based on the lowest Wall Street forecast for 2003 profits, the dividend looks safe and the stock looks cheap. If you don't own Duke, it's time to buy and lock it away up to 22."