Safety and preservation of capital is golden over the next few months as elected officials are expected to throw the financial markets over the fiscal cliff. In regards to investing it is extremely difficult to time when a deal will finally be reached, as both sides seem to be sticking to their original positions with little compromise so far. In the financial world it is becoming more accepted that the country will go over the cliff, the real question is how long and will a formidable deal be achieved. If the United States goes over the cliff for a few days or a week, the ramifications will be relatively minor. However, if this debate drags on for months we can see the economy fall back into a recession.
Some have argued that a deal will get done at the 11 hour on New Year's Eve, stating that politicians are not that irresponsible to throw us over the cliff. Others contend that the effects of the cliff-dive must first be felt in the financial markets before politicians will have to come to an agreement. A market reaction will effectively be the catalyst for folks on Capitol Hill to compromise and reach a deal. The deal needs to put the country back on track and not be a temporary band-aid that has to be dealt with in 6 months to a year. Rating agencies have already stated that a short-term deal will still result in a downgrade.
With all of the aforementioned in mind it is only prudent to take a safe approach and invest in lower beta names with good cash flow and a solid dividend. Otter Tail (NASDAQ: OTTR), based I Fergus Falls, Minnesota, offers utility services primarily in the United States, Canada, and Mexico. The company operates in six segments, electric, plastics, manufacturing, health services, food ingredient processing, and business operations. The stock currently trades at $24.73 and has a 52-week range of $20.70 and $25.21. The company has a market cap of $894mm and offers a dividend yield of 4.80%. Since June the stock has outperformed jumping from $21 to almost $25 before the recent retracement due to the performance of the overall market.
The company was recently upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations, and solid financial position with fair debt levels. The recommendation went on to note that "strengths outweigh the fact that the company has had sub-par growth in net income." Compared to last year revenue rose by 28%, with revenue growth coming in higher than the industry average of 0.7%. One issue that many have questioned is why this growth in revenue does not appear to have trickled down to the company's bottom line, as EPS has decreased. This appears to be a temporary negative as the company is restructuring and refinancing debt. The debt-to-equity ratio shows that there has been a relatively successful effort in the management of debt levels. Net operating cash flow has significantly increased well over 100% to $103.87mm when compared to the same quarter last year.
During the past fiscal year, the company has improved its bottom line by earning 42 cents a share compared to 32 cents a share the prior year. Consensus for the year is show an EPS of $1.18 at the moment. The stock has been in a solid uptrend for the past 6-months, technically showing a strong channel to the upside. With earnings expected to improve and a dividend yield of 4.80%, OTTR should be bought on the dips.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.