When You Can't Decide, These Low Beta, High Dividend Stocks May Be For You

Includes: ED, NWE, SO
by: David White

We are getting close to the "Sell in May, and go away" time of year. They market has had a terrific run up since October of 2011. It is looking tired. The EU situation is looking worse. An EU recession will likely be announced within the next month or two. This situation may drive the overall market downward. What should you invest in?

One thing that looks good is the big utility companies, especially the ones that are already making good profits. These companies generally have low Betas. They hold up well in a down market. Plus they have high dividends. They pay you to wait out the tough times. Is that all they have going for them?

The answer is no. U.S. natural gas prices have recently fallen from approximately $5/mmBTU last June to approximately $2/mmBTU currently. The trend line is still strongly downward. Some think natural gas prices will bounce off this level, but many others think they will continue downward to $1.34/mmBTU or even to $1/mmBTU. Almost all agree that US natural gas prices will remain low throughout this year.

You can benefit from this trend. Utilities which supply natural gas will not likely lower their prices much if at all during this "temporary" move lower in natural gas prices. They will instead make that much more profit than their norm. Plus this situation could go on for two or three years. For those utilities that generate much of their electricity using natural gas powered turbines, the profits will be even greater. The same can be said for coal powered electrical generation, as coal prices are also low.

In a more speculative vein, almost all energy prices have fallen dramatically. This list includes coal, solar, US natural gas, and even uranium. On top of this, commodities prices usually fall in a recession, and the coming EU recession is in a big economic bloc. The one strong energy commodity, oil, seems likely to follow the other forms of energy down. This will be just one more area of profit for these utilities. You can't go too far wrong investing in good solid utilities this year.

Three of my favorites are: Consolidated Edison (NYSE:ED) -- Steady Eddie, Southern Company (NYSE:SO), and Northwestern Corp. (NYSE:NWE). The charts of these companies speak for themselves. The fundamentals I have cited above tell you that the clear uptrends on all three of the charts should continue (see below).

The two year chart of ED:

(Click to enlarge)

The two year chart of SO:

(Click to enlarge)

The two year chart of NWE:

(Click to enlarge)

As far as timing goes, Northwestern Corp. appears to be the most over sold. However, both ED and Northwestern Corp. are close to their 200-day SMAs. This has historically been a good time to buy ED and Northwestern Corp. SO is far above its 200-day SMA, but you have to wonder if you should rule it out for its greater strength. I don't think you can go too far wrong on any of these. A few of the fundamentals of these stocks are in the table below.









Avg. Analysts' 1 yr. target price




















Avg. Analysts' Rating




5 yr. EPS growth estimate per annum




Northwestern Corp. is smaller and in the Midwest, but it is trading at a much more reasonable multiple, and it has good growth prospects, especially with the new business that the unconventional oil industry is bringing to its business area. It could be a great long term investment.

Another point to note is that ED has a heating oil to natural gas conversion program. With natural gas prices so low, this arm of the business may do a thriving business. Additional natural gas heating customers would also tend to increase ED's profitability for the next several years of low US natural gas prices.

Good Luck Trading.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NWE over the next 72 hours.