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ONEOK (NYSE:OKE) is a natural gas utility company serving over 2 million customers in Oklahoma, Texas and Kansas. It sells, transports and delivers purchased gas only - the production, gathering and processing units were sold off in 2005 and 2006. The company continues to hold a 47% interest in ONEOK Partners (NYSE:OKS) which bought the gathering, processing, liquid natural gas and storage assets from ONEOK in 2006.

As a regulated utility, this company has steady and relatively predictable earnings. Value Line ranks its 'earnings predictability' in the top 20% of its 1700 stock universe and its rating for 'stock price stability' is in the 90th percentile.

The dividend has been raised in each year since 2003, with the current yield a very attractive 5.87%. This represents the highest average annual yield since 1995, yet the payout ratio is a reasonable 52.5% of this year's expected $3.05 EPS.

That earnings figure for 2008 will be OKE's highest ever. Consensus views for 2009 now run between $3.19 and $3.25 making the P/E about 8.9x this year's and 8.5x next year's earnings.

How cheap is that for OKE? The previous lows on valuation for OKE came in early 2000 at 10.6x, just after the 9/11 attacks at 11.8x, just before mid-year in 2004 at 9.2x and right around year end in 2005 at 10.5x. Stock performance from those low points was + 132% in under a year, + 62% in 7 months, + 81% in 15 months and + 110% in 18 months (even without counting dividends). The 10-year median P/E for OKE has been 14x.

Even a 12 multiple on this year's earnings of $3.05 would bring these shares back to $36.60 or plus 34.5% from today's quote. Add in the almost 6% yield and a 40% or better total return looks very achievable on a pretty conservative stock [beta = 0.9]. Value Line notes that OKE shares have outperformed 95% of their 1700 stock universe in terms of 'price growth persistence' over the past decade.

Here are the per share numbers for OKE since 2003 as reported by Value Line. 2008 data includes its estimates for Q4 (ending Dec. 31).

Year …... Sales ….. C/F ….. EPS ….. Avg. Yield ….. Avg. P/E

2003 ….. 31.50 …. 3.86 …. 2.13 ……. 3.5% ………… 9.2x

2004 ….. 57.47 …. 4.14 …. 2.30 ……. 3.7% ………… 10.3x

2005 …..130.56 … 4.70 …. 2.55 ……. 3.6% ………… 11.9x

2006 …..107.42 … 4.64 …. 2.43 ……. 3.4% ………… 14.6x

2007 …..129.70 … 5.12 …. 2.79 ……. 3.0% ………… 16.9x

2008 …..163.80 … 5.40 …. 3.05 ……. 4.4% ………… 11.9x

ONEOK appears to be a good alternative to holding cash on the sidelines regardless of the economy's fragility. The yield is about twice the best money market interest available today and, unlike fixed income, OKE offers some pretty nice upside.

Is my $36.60 goal attainable? These shares hit $35.80 in 2005 on just $2.55 in EPS and with a $1.09 annual dividend. They peaked at $44.50, $55.30 and $51.30 in 2006-2207 and 2008. With fundamentals at their best levels ever and the dividend up to $1.60 annually, I feel confident that my target can be achieved or exceeded.

Disclosure: Author owns OKE shares and is short OKE puts.

Source: ONEOK: This Gas Utility's Value Keeps Rising