First and foremost in my thinking these days is relative market risk of any position in my portfolio. What I see as high valuations have prevented me from opening any new equity positions so far this year and for much of 2009. In fact, before Exelon (NYSE:EXC), my sole purchase this year has been that of iShares Barclays 20+ Year Treasuries Bond ETF (NYSEARCA:TLT) on February 11th, 2010 at $90.12 and I see it as insurance against a declining stock market and troubles in the eurozone.
April 28, 2010 was a day filled with important events for the market. No big bombs being dropped. Nothing like the previous day's market shocking S&P downgrades of Greece's debt from investment grade down to junk and Portugal's debt by two notches. (Everyone knew this was coming and more of these sovereign debt downgrades are certainly on the way.)
The Fed's policy statement was released with the infamous "likely to warrant exceptionally low levels of the federal funds rate for an extended period" clause, returning calm to the markets. (Oh, how quickly we forget.) Also, HP (NYSE:HPQ) announced its acquisition of Palm (PALM). Hardly a surprise given Palm's miserable latest financials and recent announcements that they were seeking a buyer; it nevertheless gave techs a reason to stay in the black.
In the meantime, I was happily bottom fishing in the currently under-appreciated by Wall Street Utilities sector. Utilities have significantly outperformed the markets during the crash, but have been major under-performers since then, as general markets quickly recovered. In looking at the sector over the past several weeks, I identified Excelon (see earnings call transcript here) as a potential Buy. When it stubbornly moved sideways around its long-term resistance level, that was my cue to jump in and I picked up shares at $43.01.
There are four main reasons why I specifically see Exelon Corp., the largest nuclear operator in the U.S., as a good deal at this price level:
a) A reasonably safe, nearly 5% dividend.
b) Predictable cost and demand for electricity.
c) Below peer forward looking and current P/Es of 10 - 11.
d) Current valuation assumes cheap natural gas and no carbon legislation.
Of course, just like with any other investment, there are risks. When I shared my purchase decision privately with Vitaliy Katsenelson, a fellow Seeking Alpha Contributor, he responded with a brief on why this is a $25 stock, citing unfunded pension liabilities, limited growth and impaired cash flows. Sounds a lot like the U.S. as a whole, but with a higher yield, doesn't it?
Disclosure: Long EXC, TLT