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In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the utilities that are being accumulated and those being distributed by the world's largest fund managers. These mega managers, managing between $50 billion and over $700 billion in 13-F assets, control over 35% of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Taken together, they are bullish on the group, adding a net $2.73 billion in Q4 to their $209.87 billion prior quarter holdings in the group. The utility companies in this group includes electric power utilities, gas distribution utilities, and the water supply utilities.

The following are the utilities that these mega fund managers are most bullish about, that are undervalued relative to the peers in their group, and that have a significantly higher dividend compared to their group peers (see Table):

Southern Co. (SO): SO is a holding company engaged in generation, transmission and distribution of electricity serving customers in the southeastern U.S. in AL, GA, FL, MS and NC. A total of 29 mega funds hold 23.7% of the outstanding shares, with nineteen funds buying and four selling during the quarter. Also, together mega funds added a net $119 million in Q4 to their $9.14 billion prior quarter position in the company. The top buyer was State Street Corp., with $565 billion in 13-F assets ($73 million), and the top holders were State Street ($1.98 billion) and Vanguard Group, with $1.6 trillion in assets under management ($1.59 billion).

SO is a high-quality utility that has reported consistently rising earnings and dividend payments almost every year, accompanied by a relatively high capital appreciation, with its share price having risen 30-fold since the early 80's at an impressive average annual rate of about 12%. The company reported its Q1 (March) quarter just the week before last, on Wednesday, missing on both analyst revenue and earnings estimates (42c v/s 47c), with the company citing that earnings were negatively affected by warmer-than-normal weather during the first quarter of 2012. The stock currently trades near all-time highs, at a slight discount at 16-17 forward P/E and 2.2 P/B compared to averages of 18.5 and 1.4 for the electric utilities group, and it has a dividend yield of 4.3% compared to the 3.5% average for the group.

Progress Energy Inc. (PGN): PGN is engaged in providing electric utility services in the Carolinas and Florida using coal, oil, hydroelectric, natural gas, nuclear, and alternative energy sources. A total of 27 mega funds hold 32.5% of the outstanding shares, with fourteen funds buying and ten selling during the quarter. Also, together mega funds added a net $186 million in Q4 to their $4.97 billion prior quarter position in the company. The top buyer was mutual fund powerhouse Fidelity Investments ($98 million), and the top holder was State Street Corp. ($1.48 billion).

PGN reported its Q1 (March) on Thursday, missing analyst revenue and earnings estimates (48c v/s 65c), but reaffirming FY 2012 EPS guidance. Its shares trade at 16-17 forward P/E and 1.6 P/B compared to averages of 18.5 and 1.4 for the electric utilities group, while earnings are projected to rise modestly from $2.95 in 2011 to $3.31 in 2013. Also, it has a high dividend yield of 4.6% compared to the 3.5% average for the group.

The following are some additional utilities that mega fund managers accumulated in Q4 (see Table):

  • Nextera Energy Inc. (NEE), that is engaged in the generation, transmission, distribution and sale of electricity in the U.S. and Canada, in which mega funds together added a net $421 million in Q4 to their $10.18 billion prior quarter position in the company;
  • Excelon Corp. (EXC), that is engaged in the generation and distribution of electricity to 5.4 million customers in PA and IL, in which mega funds together added a net $385 million in Q4 to their $8.85 billion prior quarter position in the company;
  • Xcel Energy Inc. (XEL), that is engaged in the generation, purchase, transmission, distribution and sale of electricity to residential, commercial and industrial customers, as well as to public authorities in the U.S., in which mega funds together added a net $159 million in Q4 to their $4.80 billion prior quarter position in the company;
  • Centerpoint Energy Inc. (CNP), that 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, in which mega funds together added a net $119 million in Q4 to their $2.90 billion prior quarter position in the company; and
  • Companhia Energetica (CIG), that is a Brazilian utility engaged in the generation, transmission and distribution of electricity in Brazil, in which mega funds together added a net $67 million in Q4 to their $832 million prior quarter position in the company; and
  • AES Corp. (AES), that is a global power company operating in North America, Latin America, Europe, Asia and the Middle East, in which mega funds together added a net $57 million in Q4 to their $3.66 billion prior quarter position in the company.

Besides these, mega fund managers based on their Q4 trading activity indicated that they are bearish on the following utilities:

  • American Electric Power (AEP), that 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, in which mega funds together cut a net $395 million in Q4 from their $7.06 billion prior quarter position;
  • Public Service Enterprise Group Inc. (PEG), a holding company providing utility services in the northeastern and mid-Atlantic U.S., in which mega funds together cut a net $391 million in Q4 from their $5.79 billion prior quarter position;
  • Firstenergy Corp. (FE), that 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, in which mega funds together cut a net $103 million in Q4 from their $8.13 billion prior quarter position; and
  • NV Energy Inc. (NVE), a holding company engaged in the generation and distribution of electric energy in Nevada and eastern California, in which mega funds together cut a net $11 million in Q4 from their $1.90 billion prior quarter position.

Table

(click to enlarge)

Credit: Fundamental data in this article were based on SEC filings, 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 2 High-Yield, Undervalued Utilities Being Accumulated By Mega Funds, 4 Being Sold