ChangeWave Charges up Exelon

01/10/2003 12:00 am EST


Tobin Smith

Founder and Chief Research Analyst, Transformity Research LLC

ChangeWave Investing according to Tobin Smith is about identifying major trend changes. He explains, "To identify waves, we’ve recruited over 3,700 professionals to be our eyes and ears." He monitors about 20 different industries in search of these waves. One such expected trend, a reduction in taxes on dividends, leads to his 2003 top pick, Exelon.

"ChangeWave Investing is about identifying and riding fast moving shifts in the economic world. Many times these shifts are caused by regulatory changes that trigger rapid change. One massive shift we'll see in 2003 is a reduction in taxes for dividends paid by corporations. One dividend paying company we like a lot is Exelon (EXC NYSE), the combination of the old Philadelphia Electric and Chicago's Commonwealth Edison.

"Exelon has the largest electric customer base in the US, with approximately 5 million retail customers in Chicago and Philadelphia. Excelon is also one of the few major utilities that was not bit by the merchant energy bug, which has kept its earnings consistently growing. Exelon's five-year average return on capital is 8%; its long-term earnings per share growth is estimated at 6% and its 2003 earnings outlook is $4.89 per share.

"By only paying out 39% of its income in dividends, it has plenty of firepower to raise dividends. In addition to its stable financial position and huge customer base, Exelon also has the largest nuclear fleet in the United States, with 17 reactors producing about 17,000 megawatts. Nuclear power generation is the lowest cost way to create electrical power so their earnings are not whipsawed by increases in natural gas, coal, or oil prices. Buy around $50 and look for a 20% return and 4% dividend in 2003."

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