Street racing is just like investments: You win some, you lose some. Looks like today just wasn't your day.
When it really comes down to it, I choose my investments and my cars with similar objectives in mind. I tend not to pick "flashy" investments or "tomorrow's hot stock;" rather, I go for picks that fly under the radar with seemingly boring or lackluster attributes where relatively few people tend to understand and many do not realize in terms of true potential. Call them sleeper investment vehicles, if you will.
One such investment which certainly meets this criterion is the powerhouse Exelon Corporation (EXC). This Chicago, Illinois-based company operates as a utility services holding company which deals mainly with the generation of electricity for residents of the North Eastern United States. Exelon generates electricity from nuclear, fossil, hydroelectric and renewable energy sources, such as solar and wind. It also caters to customers looking to buy natural gas at wholesale prices, as well running an energy transmission and distribution service segment. Exelon serves nearly six million residential, commercial, industrial and wholesale customers.
I'd be willing to wager many of you readers out there have never even heard of EXC. I'd also be willing to bet many of you wouldn't expect my silver, unassuming Volkswagen to beat you by a few seconds in the quarter mile. The reality is that some things in life often take you by surprise.
Despite being a company that largely flies under the radar, Exelon boasts a $26 billion market cap and annual revenues of nearly $20 billion. Even more exciting is EXC's 5.2% dividend yield and 58% payout ratio, which are not only jaw dropping but relatively sustainable at current levels. Exelon carries a fair amount of debt ($14.5 billion); however it's not rare for utilities to take on this kind of debt in order to conduct business.
Currently trading just above the 52-week low of $39.06 with a forward five-year low P/E ratio of about 13, it would be fair to say the stock is trading at a very attractive valuation at the moment. Furthermore, with a wide economic moat and over three decade-long history of dishing out dividends, I'd rate EXC at a buy and am looking to add to my holdings in the upcoming week or two.
Late last year EXC and Constellation Energy Group, Inc. (CEG) were given the go ahead to merge with an all-stock deal in order to join talents and increase production capacity by the Department of Justice (DOJ). According to the DOJ, the combination of CEG and EXC would create one of the largest utility companies in this country with revenues nearing $33 billion. Suffice to say I'll be keeping an eye on this venture.
Sounds good. Where do I sign?
Before rushing out to pick up shares, make sure to do your due diligence and look into potential negatives of any investment. Being a relatively large utility with low beta, EXC is not likely to provide a strong amount of capital appreciation. Moreover, Exelon is still dealing with a potentially underfunded pension program; though the company has a strong plan to deal with this without taking away significantly from shareholder value. Finally, regulatory changes are always a concern, as a slight or untimely change could forever alter the way EXC pulls in its profit.
But I still rate EXC a "buy."
It's never a bad idea for investors of all shapes, sizes and ages to include a stalwart such as EXC in a portfolio to round out risk. With EXC trading near 52-week lows with an incredibly attractive valuation by many metrics, it's safe to say I'll be watching EXC very closely over the near future for dips and potential entry points.
As one too many individuals who share the road with me have discovered, it's never safe to judge a book by its cover. Investments are no different. Give EXC a second look and feel free to join me in sleeping well at night knowing an amazing, shareholder-friendly company is trading at such tantalizing valuations. I'll give you the green light on this one. See you on the road!
Disclosure: I am long EXC.