With landmark climate legislation working its way through Congress, investors in American Electric Power (AEP, news, msgs) and other coal-dependent utilities are wise to consider whether to sell their shares.
Shareholders' decision could hinge on how long they intend to own the companies. In the near term, some analysts think utility stocks stand to benefit from increased electricity demand as the economy recovers.
But power plants would be among the first to feel the impact of the Obama administration's goal of establishing a cap-and-trade system to help cut greenhouse gas emissions by 17% from 2005 levels by 2020.
Analysts said a cap-and-trade program could cripple earnings at electric utilities by obligating companies to buy the credits they'll need to pay for emissions in excess of a government-set cap.
American Electric Power said that the cap-and-trade system envisioned in climate legislation passed by the U.S. House on June 26 would push up its rates by about 25% over the next five years. But the Ohio company's chief executive, Michael Morris, this week said such a policy would also establish a national energy standard that's needed to provide regulatory certainty to the capital-intensive electric-utility sector.
The Senate is expected to address the House bill later this year.
AEP's shares are down 10% this year, in part because of uncertainty over climate legislation but also due to the recession's effect on power demand.
Investment bank Oppenheimer cited prospects for a recovery-induced surge in electricity demand in initiating coverage of American Electric Power with an "outperform" rating on June 30. The stock has an attractive dividend yield of 5.7%, Oppenheimer said, and trades at a price-to-earnings multiple of 10.
The company appears on a monthly list of stocks created with MSN Money's StockScouter tool, which since 2001 has helped investors assess individual stocks' likelihood of outperforming the broad market.
Investment research firm Gradient Analytics uses StockScouter to create daily and monthly stock lists. MSN Money columnist Jon Markman collaborated with the company to devise strategies for putting the tool to work.
One of Markman's strategies involves investing an equal amount of money in each of the stocks in the computer-generated portfolio at the start of the month, selling them at the end of the month, then beginning the process again the next month. An investor who followed Markman's strategy since it was launched would have realized a gain of 178% through June, according to Gradient Analytics, and had an annual average return of 15%. Over the same period, the Standard & Poor's 500 Index ($INX) was down 24%.
The chart at the bottom of this page represents the benchmark StockScouter portfolio for July.
The home brew
The coffee chain decides it has opened too many outlets too fast and says it will shore up its balance sheet by closing stores and refocusing on business basics. Starbucks (SBUX, news, msgs), right?. No, we're talking about Caribou Coffee (CBOU, news, msgs), a Minneapolis company with a chain of 515 gourmet coffeehouses in 16 states and the District of Columbia.Its new strategy appears to be working: Caribou Coffee reported profits in its two most-recent quarters after losing money in the preceding 14 quarters, the Minneapolis Star Tribune reported.
Caribou is also putting greater emphasis on commercial sales, which account for just 7% of its revenue today. Sales of its roasted whole beans and ground coffees to grocery stores, airlines, office coffee suppliers, college campuses and entertainment venues grew by 61% in the first quarter from the same period in 2008.
Caribou Coffee shares are up 372% this year, as investors have bought into the notion that consumer woe over the economy doesn't mean less coffee consumption.
"Coffee is recession-resistant," analyst Michael Podhorzer of research firm Sidoti recently told USA Today. "Whether they go out for it or go to a grocery store, people will still buy their coffee."
Slim and none
America Movil (AMX, news, msgs) is also on the July list. The Mexico City company is Latin America's largest provider of wireless services. It had 183 million wireless customers at the start of 2009, up 19% from a year earlier, in part due to the company's success in getting working-class customers in Mexico and Brazil to go mobile with cheap handsets and prepaid calling cards.The pace of subscriber growth has slowed this year, though, as Latin American economies have contracted.
The company is owned by one of the world's wealthiest men, Carlos Slim Helú, whose empire includes mines, retail stores, cigarettes and banks, and touches nearly every aspect of life for Mexico's 110 million citizens.
Despite the recent slowdown, America Movil anticipates demand for wireless services will surge, and it's investing to deploy third-generation, or 3G, networks in most of its markets to support the growth.
It is building a wireless network for all of its Latin American subsidiaries with the expectation that a common platform will permit seamless digital roaming across countries and the introduction of applications and services that can be standardized across the region.
America Movil also provides broadband services, and is betting that broadband access will become cheaper and more affordable to Latin American consumers as increased use of Web-enabled smart phones and netbook computers drive down prices, Dow Jones reported.
Thrift is in
Americans' renewed sense of frugality is not universally welcomed on Wall Street, where worries about the trend's adverse effect on corporate earnings are widespread. But more money deposited into savings accounts is good news for community banks such as Summit State Bank (SSBI, news, msgs), headquartered in Santa Rosa, Calif.A recent Gallup poll found that savings accounts and real estate were the preferred long-term investments, by 34% and 33%, respectively, ahead of stocks and mutual funds (15%) and bonds (12%).
Summit State Bank has tried to stoke demand for savings products by launching programs designed to draw new consumer and business accounts.
The bank's lending products include single-family and multifamily mortgages, construction loans and consumer loans, though mortgage lending has been minimal in recent years and the bank refrained from making subprime mortgage loans. Commercial real estate loans account for 40% of the bank's loan portfolio, and commercial and agriculture loans account for about 20%.
An innovative mix
StockScouter depends on advanced mathematics, software and an innovative mix of measurements and historical testing to forecast the short- and long-term outlook for all U.S. companies that have traded on the three major exchanges for at least the past six months. The analytical tools are applied to score stocks on fundamental, valuation, technical and ownership components.This score is combined with each company's StockScouter rating to come up with the list in the above chart. Only stocks with a final closing price above $3 are eligible for the list.
