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In this article, via an analysis (based on the latest available Q3 institutional 13-F filings) of the investing activities of the legendary fund managers or gurus in the utility sector, we identify the utilities that are being accumulated and those being distributed by these guru managers (for more general information on these funds, please see the end of the article). The utilities group includes electric power utilities, gas distribution utilities, and the water supply utilities. Taken together these guru funds are bullish on the group, adding a net $220 million in Q3 to their $4.14 billion prior quarter position, and they are also underweight in the group by a factor of 0.25, which is somewhat understandable given that a significant number in the group are foreign utilities.

The following are the utilities that guru fund managers are bullish about, and that also have a high dividend yield and are trading at a discount to their peers in the group:

Centerpoint Energy Inc. (NYSE:CNP): CNP provides electricity transmission and distribution, natural gas distribution and sales, interstate pipelines and gathering operations to customers in AR, IL, IA, KS, LA, MN, MS, MO, OK, TX, and WI. This was the largest net purchase by far by guru funds in Q3 in the utility sector, as they added a net $122 million to their prior $5 million position, and taken together guru funds hold an outsized 1.6% of the outstanding shares versus their 0.7% weighting in the group. In fact, York Capital Management was the one fund that opened a new $127 million position in CNP in Q3, and thereby accounted for the entire position in CNP; SAC sold out of its $5 million position in Q3.

CNP has an attractive dividend yield of 4.1% versus the average 3.8% for the electric utilities group and the 2.1% average for companies in the S&P 500 (NYSEARCA:SPY). The stock currently trades near almost 10-year highs, up a nice 22% YTD. It trades at a discount 15.5 forward P/E compared with the 16.4 average for the electric utilities group, while earnings are projected to increase modestly from $1.12 in 2010 to $1.21 in 2012.

Firstenergy Corp. (NYSE:FE): FE is a diversified energy services holding company that provides electricity and natural gas services, as well as energy management and other energy-related services in OH, PA, NJ, WV, and MD. At $581 million, this is the guru funds' second largest position, including adding $30 million in Q3, and together they hold an outsized 3.1% of the outstanding shares. The largest guru fund buyer in Q3 was First Eagle Investment Management ($45 million), and it was also the largest holder with $545 million worth of shares.

FE has among the highest yields in the group at 4.9% versus the 3.8% and 2.1% averages for the electric utilities group and S&P 500 respectively. FE too is up for the year almost 20% YTD. It trades at a discount 13 forward P/E compared with the 16.4 average for the electric utilities group, while earnings are projected to fall from $3.61 in 2010 to $3.32 in 2012.

Duke Energy Corp. (NYSE:DUK): DUK provides electrical and natural gas utility services to about 4 million electric and 0.5 million gas customers in the Americas. Guru funds added a net $5 million in Q3 to their $6 million prior quarter position. The top buyers in Q3 were Hussman Econometrics Advisors ($3 million) and SAC Capital Advisors ($2 million).

DUK is up 18% YTD and near almost 10-year highs, and it trades at a discount 14-15 forward P/E compared with the 16.4 average for the electric utilities group. Also, it yields an attractive 4.8% dividend, well above the 3.8% average for the group.

Besides the high-dividend undervalued utilities above, the following are the top utilities that were sold by guru funds in Q3 (see Table):

Excelon Corp. (NYSE:EXC): EXC is engaged in the generation and distribution of electricity to 5.4 million customers in PA, and IL. It generates electricity from nuclear, fossil, hydroelectric, and renewable sources. Guru funds cut a net $6 million in Q3 from their $67 million prior quarter position. The top seller was SAC Capital Advisors ($9 million). EXC has an attractive dividend yield of 4.8%, and it trades at 14-15 forward P/E compared with the 16.4 average for the electric utilities group.

American Electric Power (NYSE:AEP): AEP is engaged in the generation, transmission, and distribution of electric power to retail customers in AR, IN, KY, LA, MI, OH, OK, TN, TX, WV, and VA. Guru funds cut a net $5 million in Q3 from their $19 million prior quarter position. The top guru fund seller was SAC Capital Advisors ($17 million). AEP yields an attractive 4.8% dividend, and it trades at a discount 12-13 forward P/E compared with the 16.4 average for the electric utilities group.

Companhia Energetica (NYSE:CIG): CIG is a Brazilian utility engaged in the generation, transmission and distribution of electricity in Brazil. It generates electricity at 59 hydroelectric plants, 3 thermoelectric plants, and 4 wind farms. Guru funds cut a net $4 million in Q3 from their $10 million prior quarter position. The top guru fund seller was Fisher Asset Management ($4 million). CIG sports among the highest dividend yields in the group, at 6.1%, and it trades at 9-10 forward P/E compared with the 16.4 average for the electric utilities group.

Constellation Energy Group (NYSE:CEG): CEG operates as an energy company, engaged primarily in generating, purchasing and selling electricity, and purchasing, transporting and selling natural gas. Guru funds cut a net $2 million in Q3 from their $154 million prior quarter position. The sellers were Donald Smith & Co. ($1 million) and First Eagle Investment Management ($1 million). CEG yields a below-average 2.4% dividend, and it trades at 16-17 forward P/E compared with the 16.4 average for the electric utilities group.

PNM Resources Inc. (NYSE:PNM): PNM is a holding company engaged in the generation, transmission, distribution and sale of electricity and natural gas, primarily to residential, commercial and industrial customers in NM, and it also sells power on the wholesale market in the western U.S. Guru funds cut a net $35 million in Q3 from their $154 million prior quarter position. The top and only seller was Donald Smith & Co. ($36 million). PNM yields a 2.9% dividend, and it trades at a discount 13-14 forward P/E compared with the 16.4 average for the electric utilities group.

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Credit: Fundamental data in this article were based on SEC filings, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: Top High-Yield, Undervalued Utility Picks By Legendary Fund Managers In Q3