Utilities sector

[EricL]

Don't have time for a long response, but I'd take a good look at WEC for your 5th utility and AWK for your water utility. WTR is another to consider for water, it has also been a very good performer over the years. Both are quite overvalued, but you knew that already =).

[Otter]

I like CNP at the moment. Price is nice. Haven't added to my position in several years, but may add more soon.

[EricL]

(12-09-2019, 04:30 PM)Otter Wrote: I like CNP at the moment. Price is nice. Haven't added to my position in several years, but may add more soon.

I agree that it looks attractive. One of the few in the sector trading below my fair value target.

[fenders53]

(12-09-2019, 03:17 PM)EricL Wrote: Don't have time for a long response, but I'd take a good look at WEC for your 5th utility and AWK for your water utility. WTR is another to consider for water, it has also been a very good performer over the years. Both are quite overvalued, but you knew that already =).

WEC ran away from me.  I sold a few puts but had to stop chasing it.  It will come partway back to me eventually.  One things for sure and most of my UTE money will be in companies wise enough to realize they better be adding more renaewables and killing coal plants every year.  At some point I'm convinced they are going to be on the right side of the politics for many years.

[EricL]

For those interested, I updated my utility watch-list spreadsheet last night with 2020 earnings estimates, and updated my projected dividend growth rates based on those numbers. You can find the spreadsheet near the bottom of the post.

Its amazing how much the sector has been bid up by income investors, there's only three companies on my list that yield over 4% anymore!

Utility Sector Stocks

[fenders53]

Thanks Eric. Still holding my breath. I've never seen Utes run like this and it is well over a year long rally now.

[EricL]

(02-19-2020, 04:16 PM)fenders53 Wrote: Thanks Eric. Still holding my breath. I've never seen Utes run like this and it is well over a year long rally now.

Oh I agree, it's crazy town in the sector.

Just looked at my water utility list, and most are trading at PE's over 30, with a few over 40. Yields well below 2%. All have EPS growth rates under 10%.

AWK and NEE are getting tough to hold. They are still underweight positions in my portfolio so I'll probably just stand pat and hold for the long term, but there's little doubt they are overvalued here.

[fenders53]

(02-19-2020, 04:44 PM)EricL Wrote:

(02-19-2020, 04:16 PM)fenders53 Wrote: Thanks Eric.  Still holding my breath.  I've never seen Utes run like this and it is well over a year long rally now.

Oh I agree, it's crazy town in the sector.

Just looked at my water utility list, and most are trading at PE's over 30, with a few over 40. Yields well below 2%. All have EPS growth rates under 10%.

AWK and NEE are getting tough to hold. They are still underweight positions in my portfolio so I'll probably just stand pat and hold for the long term, but there's little doubt they are overvalued here.

It is crazy town indeed, and most of the Utes we hold are not growing revs anywhere near 10%.  They miss earnings and go up the next day anyway.  It's delusional to think the regulators will allow them to grow into the current quality tech stock PE's. I'm not selling yet, but I am NOT going to ride them into the dirt and wait 5+ years to get back to today.  The first sign they are hitting a wall I am going to start selling slowly.  If they take a big hit I will sell most of it and start averaging back in when the selling slows down.  No need to time it perfectly. Utes at 40 PE?  The don't be greedy alarm should be going off long ago.  I never dreamed I would ever see Utes go momo.  They no longer offer a good yield, and they no longer offer any recession protection.  The market will turn on them soon enough and institutions will rush for the exit.  People are still buying because they always go up.  It has nothing to do with yield and defense anymore. 

This is exactly how I turned 2007 into a very early retirement.  I think we might survive 2020 but the bubble will pop and you won't get a deer in the headlights reaction from me.

[EricL]

(02-19-2020, 09:28 PM)fenders53 Wrote:

(02-19-2020, 04:44 PM)EricL Wrote:

(02-19-2020, 04:16 PM)fenders53 Wrote: Thanks Eric.  Still holding my breath.  I've never seen Utes run like this and it is well over a year long rally now.

Oh I agree, it's crazy town in the sector.

Just looked at my water utility list, and most are trading at PE's over 30, with a few over 40. Yields well below 2%. All have EPS growth rates under 10%.

AWK and NEE are getting tough to hold. They are still underweight positions in my portfolio so I'll probably just stand pat and hold for the long term, but there's little doubt they are overvalued here.

It is crazy town indeed, and most of the Utes we hold are not growing revs anywhere near 10%.  They miss earnings and go up the next day anyway.  It's delusional to think the regulators will allow them to grow into the current quality tech stock PE's. I'm not selling yet, but I am NOT going to ride them into the dirt and wait 5+ years to get back to today.  The first sign they are hitting a wall I am going to start selling slowly.  If they take a big hit I will sell most of it and start averaging back in when the selling slows down.  No need to time it perfectly. Utes at 40 PE?  The don't be greedy alarm should be going off long ago.  I never dreamed I would ever see Utes go momo.  They no longer offer a good yield, and they no longer offer any recession protection.  The market will turn on them soon enough and institutions will rush for the exit.  People are still buying because they always go up.  It has nothing to do with yield and defense anymore. 

This is exactly how I turned 2007 into a very early retirement.  I think we might survive 2020 but the bubble will pop and you won't get a deer in the headlights reaction from me.

The thing is, what alternatives are there for income investors? It is a worldwide market, and bond yields around the world are heading to zero, and in some cases are already negative. Central banks have the printing presses running and the Fed is injecting liquidity like crazy. Meanwhile, companies are buying back shares like never before, and M&A is shrinking the number of companies available in the market.

Inflation is the only way out of the debt situation for the US and the rest of the world, so its a race to the bottom with the currencies and interest rates. As long as the Fed and China continues to inject liquidity, the market keeps going higher.

Eventually the music will stop and we'll get 2000 and 2008 all over again, but it wouldn't surprise me at all if the market is another 25-50% higher before that happens. Don't fight the fed!

[crimsonghost747]

I feel your pain with the current system, and I fully agree with it being a race to the bottom with currencies and interest rates. It's certainly not going to end well but yeah, it's likely that the central banks will just keep pushing free money into the market at increasing speeds for years to come. I don't know what the end game is, there probably isn't one, since it just feels to me like trying to revive a broken system by breaking it even more.

Anyway, alternatives for income investors? Well the large majority of bonds are definitely out of the window. There are some that are interesting, mainly 3rd world ones but those can be very difficult to get, and then you also need to hedge for currency. I'm still researching this as I do need an alternative that yields SOMETHING for my cash. But I wouldn't consider an utility with limited growth and a P/E of 30 and a yield of 2% to be much of a choice either if we are talking about income. 2% just isn't that great, especially when it grows relatively slowly.

I'd say look into REITs, foreign utilities, maybe some big oil names... I'm still seeing some 5%+ yielding companies there with pretty solid fundamentals.
Another alternative might just be to say byebye to current yield and focus more on those with 1-2% yields and 10-15% dividend growth rates. It'll be a long road but 5-10 years down the road that could also reward you pretty nicely on the income side.

[fenders53]

Eric I get all that.  It's the story I hear on CNBC everyday.  I don't accept the logic for Utes at this time.  For now I can get a 2% yield from my ultra short bond fund.  The share price moves in a 3 penny monthly trading range.  NEE is obviously in momo land, but what does stable and slow grower XEL yield now?  I don't even want to look.  I know the PE is 30ish.  

My last post wasn't intended to tell you to cash out.  Just don't drink too much of the talking heads Kool-aid.  Have you ever lost enough money to buy a BMW in a year?  Lose a BMW AND a Mercedes in only a year (on paper) and then you'll understand why I have learned to tread carefully when bubbles happen.  I just lost my AEP shares to a covered call sell.  I'll live with that.   About to lose my beloved XEL.  XEL is well over a 10 bagger for me so I'll live with that too.  I will just park that money and get the same yield with next to zero risk.  

Hear me now, believe me later lol.  I'm enjoying the conversation as always.  Dissenting opinions are welcomed.  I'm not cashing out of Utes, but I am taking baby steps towards the Ute exit.  I'm up big and I'm not giving it all back no matter what happens.  I'll get another chance to reenter and get my 3.5% Ute yields back.  I don't know when of course, but it will happen.

[EricL]

(02-20-2020, 09:35 AM)fenders53 Wrote: Eric I get all that.  It's the story I hear on CNBC everyday.  I don't accept the logic for Utes at this time.  For now I can get a 2% yield from my ultra short bond fund.  The share price moves in a 3 penny monthly trading range.  NEE is obviously in momo land, but what does stable and slow grower XEL yield now?  I don't even want to look.  I know the PE is 30ish.  

My last post wasn't intended to tell you to cash out.  Just don't drink too much of the talking heads Kool-aid.  Have you ever lost enough money to buy a BMW in a year?  Lose a BMW AND a Mercedes in only a year (on paper) and then you'll understand why I have learned to tread carefully when bubbles happen.  I just lost my AEP shares to a covered call sell.  I'll live with that.   About to lose my beloved XEL.  XEL is well over a 10 bagger for me so I'll live with that too.  I will just park that money and get the same yield with next to zero risk.  

Hear me now, believe me later lol.  I'm enjoying the conversation as always.  Dissenting opinions are welcomed.  I'm not cashing out of Utes, but I am taking baby steps towards the Ute exit.  I'm up big and I'm not giving it all back no matter what happens.  I'll get another chance to reenter and get my 3.5% Ute yields back.  I don't know when of course, but it will happen.

Completely understand your moves and positioning, and you are in a much different place than I am financially. You are trying to preserve what you already have for retirement, while I still need to grow mine ~10X yet before I reach that point.

If I was in your situation I'd probably be a lot more cautious as well.

I have 25 years until retirement and am continuing to invest with every paycheck. I'll be dollar cost averaging for a long time yet, so the ups and downs don't concern me nearly as much.