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  • What Exactly Is Risk? [View article]
    This fuzzy discussion about "risk" shows how poorly financial gurus and liberal arts majors are trained!

    Engineers (especially those in aerospace, nuclear, civil and mechanical engineering) have a very precise definition of RISK

    RISK = Probability of event scenario (failure) x CONSEQUENCES of event (failure).

    Risk analysis becomes a probabilistic analysis of delineating various scenarios that could lead to failure or bad consequences. Very important for risk calculations for nuclear power plants, airline safety vs. design and costs, bridges falling down, etc.

    So in this mumbo-jumbo article, let's see if there could be a grain of sanity or methodology to use:

    Volatility of price, fluctuations, and BETA are parameters to use for probability of the event or failure. BETA is defined as how a particular stock behaves relative to the entire market domain. Volatility defines how the entire market gyrates. So the event, perhaps defined as having price drop by 20% is a function of V and Beta. Beta is a scalar multiplier, and a can be used as a multiplier if the stock XYZ moves in the SAME direction as the market does when it moves as a whole.

    Probability of stock XYZ dropping 20% = F(V, beta) or BETA * F(market V)

    What are the CONSEQUENCES of the price of XYZ dropping by 20%? The stock could reduce or suspend the dividend if the payout ratio is high, stagnate its earnings growth rate, reduce its trading volume or liquidity, reduce its safety factor, timeliness in terms of momentum changes, etc. Each parameter is somewhat dependent on the others, but correlations can be used or developed based on XYZ's previous performance characteristics. The volumes of trades may be dropped if the price drops too much, so TVR = trading volume ratio changes. Gurus leave the market for XYZ stock. Let's say we could use an equation to the stocks return on investment (dividend yield + stock growth) to get a function G:

    G ( payout %, yield, stock price growth, momentum, TVR, etc.)

    RISK = BETA * F(market V) * G (payout,yield, price growth, momentum, TVR)

    Various models exist for F and G
    Apr 17, 2014. 06:36 PM | 2 Likes Like |Link to Comment
  • ModernGraham Annual Valuation Of Spectra Energy Corp. [View article]
    This shows the blind approach that the author is using!

    SE spun off 8 years ago, so how could it have 10 years of data?

    Also, the calculation that "Debt to Net Current Assets ratio less than 1.1 – FAIL" is WRONG!!!

    If you use:
    Total Debt $12,488,000,000
    Total Assets $33,533,000,000
    then Total Debt/Total Assets = 37%
    (A more meaningful ratio if you ask me!)

    or Current Assets $2,081,000,000/ Total debt = 16%.

    Both less than 110%....

    Using total debt/current assets as a ratio is still bizarre as an "inverted ratio". It says that you need to pay all of your debt NOW (or in the current year) with this year's assets rather than paying over a few years......
    Apr 17, 2014. 04:13 PM | 2 Likes Like |Link to Comment
  • Constructing And Designing The Stock Portfolio That's Just Right For You: Part 1 [View article]
    Thank you for your detailed, and very prompt reply! Your answers were very clear, and have helped me understand your approach better.

    Again, it is great to be taught by such a clear, patient, and very thoughtful Professor of Stock and Portfolio Analysis!
    Apr 17, 2014. 02:00 PM | 4 Likes Like |Link to Comment
  • Constructing And Designing The Stock Portfolio That's Just Right For You: Part 1 [View article]
    Thank you for providing such good examples. My question is what criteria would you use to search for such gems, since there are so many stocks to research?
    It looks like these would be the screening variables:
    1. Pick known companies, e.g. only from S&P 500 list.
    2. Yield greater than x % (3%) (I put in numbers to make easier, but you fill in the numbers.
    3. P/E less than or about equal to market x 1.yy factor. So P/E less than 20 perhaps.
    4. Long-term, 5 year EPS growth rate greater than 20%
    5. Intermediate (1-3 years) EPS growth rate less than 50%
    6. BETA less than 1.2 to handle volatility.
    7. Large company (already in S&P 500) but encompassing large market, multi-national bases. So sales greater than $ 200 M or a certain value.

    If you screen for these with the S&P 500 you may get some of these:


    But JNJ and the others you featured are not there. So there must be a different screen set.
    What other factors would you screen for?

    If I lower the minimum growth rate to 7%, we add strong companies like MCD, NU, KO, CMS, CAG, MO, but JNJ still does not show up.

    If the yield is reduced to 2.5% then TGT, UPS, WMT, XOM are added, but not JNJ, and there are 36 stocks.

    Could you be more precise with the screening criteria you would use ?

    The volatile cyclical stocks would not be on my "wish" list so criteria for those aren't requested.
    Apr 16, 2014. 07:51 PM | 1 Like Like |Link to Comment
  • CalPERS, NYC pension funds to vote against four Duke Energy directors [View news story]
    These directors could be external directors, i.e., they do not work at Duke. Only directors that are Duke employees, in LINE management, should be booted. Kicking them all out without looking at their affiliations, voting record, etc. is foolish.
    Apr 15, 2014. 12:31 PM | Likes Like |Link to Comment
  • Southern Company: A Utility Stock For Your Portfolio [View article]
    I meant the Southern Company's KEMPER "clean coal" plant construction project. The Kingston Coal plant is in TN, and had a massive coal ash spill destroying a large community a while back. The "clean coal" technology is very costly and as a "demonstration" plant the KEMPER unit have several kinks to alleviate.

    IMHO, "clean coal" is an oxymoron! Burning coal is NEVER clean, regardless of how much technology is used to remove fly ash, SOx, and polluting effluents.
    Apr 9, 2014. 03:20 PM | Likes Like |Link to Comment
  • Southern Company: A Utility Stock For Your Portfolio [View article]
    Great analysis for the aspects of nuclear electricity generation, and Southern's building campaign, BUT, you failed to mention the cost over-runs and issues with the Kingston Coal fired unit. The SO Vogtle project is going very well, but the Kingston building project is a mess.
    Apr 9, 2014. 02:54 PM | Likes Like |Link to Comment
  • Public Service Enterprise: Buy For Transmission Growth [View article]
    It is no surprise that the LIPA mess has to be cleaned up by bringing in PSE&G into the Long Island transmission arean. I lived through the days when LIPA was set up as a state authority to take over the transmission of the New York Power Authority (NYPA) electricity from upstate NY, with the under-the-Long-Island-... cable, when the LILCO Shoreham nuclear plant was shut down. The LILCO stock tanked, and fortunately I had options/shorts out so that when LIPA was formed, LILCO stock jumped, etc......

    The transmission cable that was to be built under the water (sound) and hook up on Long Island was stopped, delayed by all of the uproar in the Long Island towns where the cable would end and be connected to new over-land transmission lines. No one wanted to have new towers in their backyards, but they didn't want Shoreham, and still wanted cheaper electricity.
    The LIPA was set up as a political move to distribute the "cost" of the transmission cable, Shoreham mess, etc. to everyone in NY state. The LIPA management was a joke from the start.

    Again, PSE&G taking over the transmission and market for LIPA will be a bonus for PEG stockholders, a win-win for Long Island electricity customers
    Mar 19, 2014. 01:22 PM | 1 Like Like |Link to Comment
  • Public Service Enterprise: Buy For Transmission Growth [View article]
    Thanks for the link to the 9/13 list article. It is good to see that PEG is still at #2, and EXC is #1.
    Mar 19, 2014. 01:11 PM | Likes Like |Link to Comment
  • Public Service Enterprise: Buy For Transmission Growth [View article]
    Thank you for your very clear and careful analysis.

    My concern is that the Fortnightly list (provided by your link) is dated Sept. 2012, and has Exelon at the at the top of the list!! Several issues for specific utilities have arisen after Sept. 2012, including EXC's dividend decrease, higher gas prices, DUK's coal ash spill, etc.

    Is there a more recent ranking list, or up-to-date averages that could be used?

    FYI, I have several hundred shares of PEG that I bought through PSE&G's employee TRASOP (recursor to 401K, IRA) option between 1980-1982, at an average price of about $ 5-6 based on splits. And PEG is a keeper!
    Mar 18, 2014. 01:12 PM | 1 Like Like |Link to Comment
  • A Lower Risk Way To Invest In Utility Stocks [View article]
    Although the XLU etf may be a lazy man's way of getting diversification, low cost fees etc., the XLU constituent utilities includes some very poor performers!! I have some of thebetter and best Utility stocks long in my portfolio, and only a small number of XLU shares. It is better to do the analysis and pick the strong, consistent utilities from the list, search for other better utilities directly. You can use the XLE as a normalization or comparison index and the Dow utilities index to judge how your picks are doing in a relative manner.

    Using only the XLU etf and then hedging against it is not very efficient.
    Mar 14, 2014. 01:47 PM | Likes Like |Link to Comment
  • Duke Energy Investors Remain Energized [View article]
    I sold my shares earlier this week, especially after the news about not having permits came out. Made a good profit since I bought them at roughly $30 time-averaged price. I am waiting for the news cycle to clear up, and may buy a call or LEAP to lock in the price.

    Do you have any idea how long this will take to get sorted out? Especially because the permit issue is really caused by the regulators!!
    Mar 6, 2014. 02:18 PM | Likes Like |Link to Comment
  • Utility Company Dividend Analysis [View article]
    Wellsc: We also could mention that the Atlanta, Georgia regional public utility commission is very enlightened, and will not hurt SO for building the Vogtle 3, 4 units. And SO and DOE finally signed the loan guarantee agreement in Feb. It only took years for this to happen, and DOE should have been more realistic about its terms for the loan. It is good that SO held out for better conditions to finally take the loan guarantee. I am long SO too, and confident it will continue to be a good dividend generator investment, and SO will operate their nuclear plants well. Now if only the combined cycle coal plant (Kingston?) could get back on schedule and budget.....
    Mar 5, 2014. 02:10 PM | Likes Like |Link to Comment
  • Five more Duke Energy plants cited for violations after coal-ash spill [View news story]

    Duke is in the top group for their nuclear power plant operations, maintenance, and attention to safety. They have top notch people in charge of the nuclear generation area, and the Nuclear Regulatory Commission has had DUK nuclear plants rated well above other utilities.

    As for the coal plant side, I am sure that the environmental permits that are missing are ones that the NC regulator imposed recently, or failed to inform DUK of the changes, etc. Coal plant regulation is a moving target, and environmental regulations are typically a jumbled mess, with contradicting information.
    Mar 4, 2014. 02:35 PM | Likes Like |Link to Comment
  • Utility Company Dividend Analysis [View article]
    Please comment on the accident/event failure issues concerning PCG and DUK. PCG has the liability and fines related to the gas explosion in California, and DUK has the spill of the ash/sludge retaining pond, and the upcoming fines related to that event. Surely these events and subsequent fines, litigation will impact the stock price, forward P/Es, etc.
    Mar 4, 2014. 02:25 PM | 1 Like Like |Link to Comment