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Chuck Carnevale

 
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  • Utilities - Today's Best Bond Alternative [View article]
    Bucknfl,

    Thanks for the comment. See my response to Dataman above for my views.

    Regards,

    Chuck
    Aug 26 01:51 PM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    achaninUSA and Whidbey,

    Thanks for the kind words.

    Regards,

    Chuck
    Aug 26 01:49 PM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    Uunderhill,

    Thanks. For a partial response to your question see my remarks above to Dataman. Regarding your question about debt, the short answer is that most of their indebtedness is structured longer-term to coincide with various projects they are financing. For example, here is an excerpt from Capital IQ on Southern Company’s debt structure:


    Debt Summary Data
    For the Fiscal Period Ending 12 months Dec-31-2011 12 months Dec-31-2012 3 months Jun-30-2013
    Currency USD USD USD
    Units Millions
    % of Total Millions
    % of Total Millions
    % of Total


    Total Commercial Paper 654.0
    3.1%
    820.0
    3.7%
    1,462.0
    6.2%


    Total Revolving Credit -
    - 0.0
    0.0%
    0.0
    0.0%


    Total Term Loans 200.0
    0.9%
    0.0
    0.0%
    825.0
    3.5%


    Total Senior Bonds and Notes 20,019.0
    94.2%
    21,270.0
    94.8%
    2,621.0
    11.1%


    Total Capital Leases 93.0
    0.4%
    80.0
    0.4%
    -
    -

    Total Trust Preferred 206.0
    1.0%
    206.0
    0.9%
    -
    -

    General/Other Borrowings 5.0
    0.0%
    5.0
    0.0%
    18,707.0
    79.2%


    Total Principal Due
    21,177.0

    99.6%

    22,381.0

    99.8%

    23,615.0

    100.0%



    Total Unamortized Discount (32.0)
    (0.2%)
    (35.0)
    (0.2%)
    -
    -

    Total Unamortized Premium 78.0
    0.4%
    88.0
    0.4%
    -
    -

    Total Adjustments 33.0
    0.2%
    -
    - -
    -

    Total Debt Outstanding
    21,256.0

    100.0%
    22,434.0

    100.0%
    23,615.0

    100.0%


    Regards,

    Chuck
    Aug 26 01:48 PM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    Dataman,

    Thanks for the question. In a word yes, but not exactly in the precise manner you are asking about. Premium subscribers to F.A.S.T. Graphs™ are provided a graph that sits just below the historical graphs (the earnings and price correlated graphs seen in this article) that plots historical interest on the 10 year Treasury bond on the left vertical axis, and each companies historical P/E for each year over the timeframe being graphed on the right axis.

    Consequently, subscribers can see how changes in interest rates have affected a given company’s P/E ratio overtime and various interest rate levels. This graph can be drawn for as long as 20 years or as short as 2 years.

    Regarding each companies historical yields, this is found in the performance graph that accompanies each of these historical graphs (see examples in the article). Therefore, you can see the current yield on any company at the beginning of each respective year and its history. When viewed in this manner, not only can you see historical interest rates, and the historical yields on any company you graph, you can also see the impact that interest-rate changes have had on valuation.

    Therefore, I think you would discover that changes in interest rates, although they may have a short-term impact based on emotional responses, over the long run is been my observation that the impact of interest rates has a minor effect on valuations of utility stocks.

    To be clear, currently F.A.S.T. Graphs™ can only depict this during a historical period of falling rates. But to utilize your common sense thesis, it would logically follow that the inverse would have a similar modest effect.

    To add my perspective to your question/concerns, I see interest rates as a cost factor. In other words, like any cost that rises or falls, it’s up to management to deal with those changes. In many cases, managements will pass cost increases on to their customers. In the case of utilities, higher interest rates would increase borrowing costs, which I believe will be factored in during rate requests with their respective regulatory boards.

    Finally, if you carefully study the earnings and price correlated graphs on the company’s cited in this article, you will discover that valuations on utility stocks have remained remarkably consistent over time. Again, I do not see this changing over the longer run. Perhaps some short-term reaction, but longer-term I believe things will even out as they always have. Just my humble opinion.

    Regards

    Chuck
    Aug 26 01:36 PM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    Will11,

    Thanks for the question. First of all, I contend that our P/E calculation is not “off.” Instead it is the most accurate method of calculating and reporting P/E. The sites you are referring to are reporting trailing 12 months ended June 2013 of $1.98. However, I believe that calculation of P/Es can be very misleading. In contrast, F.A.S.T. Graphs™ calculates a blended P/E ratio that includes partial credit for the current earnings and includes a pro-ratta portion of estimates going forward.

    By doing the math you will get a better understanding. Divide the price, $41.93 by the 15.4 PE reported on the current F.A.S.T. Graphs™, you will get earnings of $2.72. Notice that this number is between last year’s full fiscal year of $2.67 and just short of the estimate of $2.74 expected for this fiscal year end (12/31/2013).

    Another way of understanding this is by looking at the orange line on the Southern Company graph and recognizing that it represents a PE of 15 across the entire time frame. Consequently, you can see that the price sits only a smidgen above the orange line i.e. P/E 15.4.

    Hope that clarifies things,

    Chuck Carnevale
    Aug 26 12:56 PM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    brycenesbitt,

    The PPL example in the article was offered to provide the exact answer to your question. The only way that could be done was to provide a historical example. You might want to go back and read look at the section where I covered this under the heading “The Danger and Potentially Disastrous Results of Overpaying for a Utility Stock.”

    Regards

    Chuck
    Aug 26 11:54 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    goodies,

    Thanks for the kind words. You seem to be on the right track with your current DGI strategy.
    Regards,

    Chuck
    Aug 26 11:51 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    rungrampa,

    I defer my answer to the excellent other responses to your question by the other commenter’s. I believe they provided us all great insights.

    Regards,

    Chuck
    Aug 26 11:50 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    gators,

    Thanks for the kind words, and for sharing your views.

    Regards,

    Chuck
    Aug 26 11:48 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    JMPD2013,

    Thanks for the kind words. Regarding FE and ETR, by the company made the list based on recent earnings weakness, and a lack of guidance.

    Furthermore, since I have not researched either extensively, I am reticent to offer an opinion beyond that. With that said, both appear very reasonably valued, offer good current yields, and therefore, may be worthy of a deeper look.
    Regards,

    Chuck
    Aug 26 11:46 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    toneguru,

    Thanks for the kind words. We seem to be on the same page, which was the core theme of this article.

    Regards,

    Chuck
    Aug 26 11:42 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    Eddie and Cheesecake7,

    Thanks for the kind words.

    Regards,

    Chuck
    Aug 26 11:41 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    pemberley,

    Thanks for the kind words. Also, thanks for sharing your concerns. I believe they simply highlight the importance of continuous monitoring and due diligence.

    Regards,

    Chuck
    Aug 26 11:40 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    alohafalls,

    Thanks for the kind words. Also, thanks for sharing your personal experience.

    Regards,

    Chuck
    Aug 26 11:38 AM | 1 Like Like |Link to Comment
  • Utilities - Today's Best Bond Alternative [View article]
    To Cranky and all commenter’s,

    Cranky posed the following question:
    “Last question, I promise. Wondering what you use to lower portfolio volatility for clients that are more risk averse?

    What is your bond substitue for the purpose of lowering the risk/volatility in portfolios?

    Thanks.”

    Then he repeated his question later in this same thread as follows:

    “Hi Chuck just wondering if you could still address my question in the thread above. If you don't like bonds, what do you use to lower portfolio volatility for risk averse clients?

    Again, it's my opinion we need to separate bonds (the discussion of) into purchase for yield, and purchase for traditional portfolio balance and risk management.

    Certainly one can purchase for both income and volatility reduction.”

    Clearly, this question is very important to Cranky, but even more importantly than what it means to him, I believe this is an extremely important question that all investors should ask. Moreover, I believe it’s also an important question that desperately needs answered in the context of our “modern” financial world. In that regard, I have given it a great deal of thought, which has also been the reason why I’ve been slow to respond.

    I have concluded that this question is too important to attempt to answer in the context of this thread. For starters, by doing so I would only be offering the answer to those who would get alerts that a new comment has been posted. Since I feel that this question is more important than that, I have decided to approach it from a different venue. Instead of answering the question in this thread, I have decided to turn it into a full-blown article. The good news is that I believe it will get more of the exposure that it deserves; the bad news is that it will require a further delayed response. Nevertheless, I intend to post the article this week. Consequently, I ask Cranky and all other readers to be patient. It is my current belief that your patience will be well rewarded - my ego aside.
    Regards,

    Chuck
    Aug 26 11:32 AM | 10 Likes Like |Link to Comment
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