2008 was truly a year of misery, suppression and depression in the financial markets. No sector held up well, as day after day seemed laden with negative news and panic. The utilities sector, typically seen as a safe haven, was anything but safe losing nearly 30% of its value in 2008. As the sector gears up for 2009, the stocks that should be successful are the ones that have the capacity to stand tall as the economy continues reeling; however, stocks in the utilities space need to maintain the potential to benefit from a turnaround.
WGL Holdings (WGL)
WGL Holdings is the dominant natural gas provider in the greater District of Columbia area. The company provides its natural gas services in parts of Virginia, Delaware and Maryland. The company has two subsidiaries: a regulated distribution entity, and a non-regulated retail energy commercial and governmental wholesaler.
With a market cap just under $2 billion and a customer base pushing 200,000 clients, their scope and stability may be overlooked by the casual investor. The truth of the matter is that WGL Holdings has one trump card that has it sitting amongst the big boys in the utilities sector: location, location, location. The core of their business base is centered in the Greater Washington D.C. Metropolitan area, one of the wealthiest cities in the nation and one of the least dependent on the financial services industry in the United States.
WGL’s base in Washington DC has it centered in the 4th largest regional economy in the United States with the lowest unemployment rate of any metropolitan area. Furthermore, WGL provides natural gas in 7 of the 15 wealthiest counties in the United States. In this area, over 60% of residents choose natural gas as the fuel source for home heating, all of which predominately from WGL. In 2007 alone, WGL was able to capture 91% of new residential customers, clearly making the company the superior choice for natural gas in this wealthy market.
While the current recession has America reeling, WGL’s customers aren’t in danger of significant financial distress relative to most other locations in the country. Demand levels have remained relatively flat and should continue to weather the storm into 2009, making WGL’s performance slow but steady. In fact, whether the economy is good or bad, WGL’s stock price typically remains tempered and predictable. Over a five year time horizon WGL has appreciated a mere 14%, while losing a modest 7.2% in the treachery that was 2008. The company has proven to be a safe haven investment that can outpace a down market, while bringing a safe, casual return in an up market. Therefore, even as the timing of the market’s turnaround remains debatable, WGL provides a good balance of potential appreciation with downside safety that makes it a unique and appealing choice as investors brace for 2009.
By the numbers, WGL is set up very well to go about business as usual in 2009. The company has a price to earnings ratio right around 13 and a book value to sales ratio of .61, making them relatively cheap despite an above average 2008. In addition, the company has tiny beta at .14, a testament to their safety and stability.
The rest of this free research report can be downloaded at the following link for Bullish Banker’s Best Stocks of 2009 Newsletter.
- T.J. Smith