Tag Archives: investment

PPL Corporation – Ready To Go Strong Starting 2016

Summary Stock is compelling investment prospect for income-hunting investors. Strategic investments in utility infrastructure development and extension-related projects are in-line with long-term growth generating strategy. Strategy of sharing cash flow base strength with shareholders through dividend payments will continue to positively affect stock price. PPL Corporation (NYSE: PPL )’s strong business fundamentals and its important infrastructural growth-related investments cast an impressive outlook for the stock. I believe the company’s regular efforts to augment the growth capabilities of its regulated business’ infrastructure with regular infrastructural improvement and enhancement-related investments will bode well for its future EPS growth. These healthy growth prospects of PPL will ultimately better its future cash flow productivity level and this will in turn help the company maintain its practice of paying increasingly healthy dividends in the years ahead. Moreover, PPL’s current valuations are more attractive than its peers and the industry average. Nevertheless, un-foreseen adverse weather conditions, volatility in fuel prices and strict regulatory restrictions are key threats that will keep on hovering over the company’s future financial performance. Over the last few years, the U.S. utility industry has faced challenges such as a decline in energy demand by industries amid the recession. Furthermore, the regulatory uncertainties and restrictions imposed by the Environmental Protection Agency (EPA) caused industry disruptions. However, the EIA has projected that energy demand in the U.S. will increase by 2.1% in residential space in the second of 2015 and will grow by 0.7% in industrial space in 2015, which indicates that the overall utility industry’s outlook is attractive. To combat the industrial headwinds and to meet the expected rise in energy demand, the U.S. utility industry players have accelerated their growth investments in order to get a broader regulated infrastructure. Like all of the other utility industry players, PPL is also making hefty infrastructural investments; around $10 billion is projected to be spent by the company on infrastructure improvement by the end of 2017, which will help it apply for regular rate base hikes and will ultimately drive its future earnings and revenues. I continue to believe that this utility company’s attractive growth investments will help it enjoy EPS growth in future, which will support its cash flows and dividend growth. PPL, however, is confident of achieving a 6% compounded annual earnings growth rate through 2017. And for its U.K. operations, the company now expects EPS growth of 1% to 2%, in contrast to its previous expectation of flat earnings growth. I think that these strong earnings growth potentials will augur well for the stock valuation. To recover the capital investments made previously, the company has applied for a 5.1% rate case hike. Although the case is still waiting for regulatory approval, if approved, it will add around $124 million per year towards PPL’s revenues. The company has plans to use the proceeds of its rate cases in technological upgradation and improvement-related projects. In this regard, recently, PPL asked for the Pennsylvania Public Utility Commission’s approval to make an investment of $450 million in the technology upgradation process of meters in order to resolve their problems associated with old meters. This investment will not only improve the company’s image as a quality regulated utility but will also benefit its EPS growth, because the cost of investment will be recovered through a special rate rider; as per the management’s estimates, this investment will increase rate base by $330 million . Moreover, two of PPL’s subsidiaries, namely Louisiana Gas And Electric Company and Kentucky Utilities Company, have recently signed a $220 million agreement with Paringa Resources Limited for the purchase of coal from Buck Creek No.1 mine, with the completion of certain construction-related work, coal purchase under this agreement will begin in 2018. The coal purchase agreement will extend PPL’s energy generation resources, thereby improving its load capacity and will help it apply for rate case, which in turn will help it in reporting incremental EPS growth. Furthermore, the company has maintained an impressive record of sharing its cash flows with shareholders through healthy dividend payments. Owing to consistent dividend growth, currently, PPL offers an attractive yield of 4.44% . Moreover, the commitment to keep its dividends growing has been affirmed by the company’s chairman in the 3Q2015 earnings conference call; he said : “Regarding the dividend, we expect minimal dividend growth again for 2016 as we strive to get the payout ratio down into the mid-60% range, at which time we will target a 4% to 6% dividend growth rate, more in line with our earnings growth expectations. We currently expect to be in the targeted payout range by the end of 2016. So our current expectation is that we will grow the dividend more meaningfully starting in 2017, but our current expectation for 2017 is at the low end of the 4 to 6% relative to the dividend.” Due to the abovementioned strong strategic growth prospects, I think the chairman’s dividend growth expectation is realistic and achievable. Moreover, PPL’s strong balance sheet position, as reflected in the chart below, makes me believe in the company’s ability to continue sharing a decent portion of its future cash flows with shareholders in the years ahead. Source: 4-traders.com Final Words PPL is a compelling investment prospect for income-hunting investors. The company’s strategic investments in utility infrastructure development and extension-related projects and its strong balance sheet position are in-line with its long-term growth generating strategy. Moreover, PPL’s strategy of sharing its cash flow base strength with shareholders through dividend payments will continue to positively affect its stock price. Also, earnings for PPL are expected to grow at a growth rate of 4.86% , better than Southern Company (NYSE: SO )’s earnings growth expectations of 3.88% . Also, PPL has attractive stock valuations in comparison to SO and the industry average, as displayed below. Source: Yahoo Finance & NYU.edu

The ‘Critically Counterintuitive’ Rules Of Investing

A few years ago, I came across the concept of the “critical counterintuitive.” It’s one of the most compelling mental models I have ever come across. And it’s also one that you can readily apply to the world of investing. The “critical counterintuitive” is “critical” because little else really matters. It is “counterintuitive” because the world works in ways almost exactly opposite to the way you think it does. The “nice guys” who take the flowers and candy route rarely get the girl. The smartest kid in the class rarely becomes rich and famous. The class clowns who make it big are oftentimes the most unhinged, the trappings of material wealth notwithstanding. And understanding how you can apply this mental model can spell the difference between your investment success – and utter disaster. Don’t Confuse Luck with Smarts The role of luck in investment success is deceptively subtle. You may think that investing $10,000 into one stock that makes you $1 million would be the best thing that could ever happen to you. But you’d be wrong. Having enjoyed such phenomenal success, you’d suddenly think that you’d cracked the code of the markets. The next time around, you bet your house, your car and your life savings on another “can’t lose” investment. Maybe you’d win this time as well. You calculate that if you do it only one more time, you’d have $100 million in the bank. Eventually, however, your luck runs out. Your last investment flops. And since you bet the farm, you not only lost your shirt but also you’re deeply in debt. You are worse off than when you started. Moreover, you also spend the rest of your life trying to replicate your initial trade, telling yourself that you’ve learned your lesson, and if you do it only one more time, you’ll take all your chips off of the table. That’s the problem with sudden wealth, whether it comes from a big bet on a stock tip or buying a winning lottery ticket. Any Psychology 101 student can cite the study according to which almost all lottery winners end up poorer five years after they’ve won than beforehand. As a wise man once said, “If you win a million dollars, you’d best become a millionaire. Because then you get to keep the money.” The lesson? Understand that if you have ever won a big investment bet, you were at least as lucky as you were smart. But over the long term, there are no shortcuts. Making money on a consistent basis is a grind that is one part “insight” and ten parts “discipline.” Your Analysis Is Irrelevant to Your Investment Success The philosopher Friedrich Nietzsche once observed that “any explanation is better than none.” I disagree. Sometimes, in the investment world, no explanation is really necessary – or relevant. Today, we suffer from the paradox of information overload. If you have a smartphone in your pocket, you can access more information about the financial markets than the world’s top hedge funds did 20 years ago. Yet, I bet your investment returns have not improved one iota as a result. Not only do we seem incapable of divining the future, we can’t even seem to agree on what happened. Was the credit crunch a result of Greenspan’s monetary policy, Bernanke’s incompetence or President Clinton’s “affirmative action” for low-income borrowers? Or was it just a classic mania? We crave explanations because they give us an illusion of control. But it gets even worse. Even those Cassandras who got their analysis “right” in predicting the credit crunch weren’t able to turn their accurate insights into money for their clients. And truth be told, time hasn’t been kind to their predictions either. Gold didn’t hit $5,000 an ounce. The U.S. dollar didn’t implode. Treasuries didn’t collapse. Analysts who promised to “crash-proof” their clients’ portfolios ended up losing more money for their clients than if they had stuck with simple index funds. The lesson? Successful investors are effective in the long term because they admit their mistakes. As the world’s greatest speculator, George Soros, said, “My system doesn’t work by making valid predictions. It works by allowing me to recognize when I am wrong.” Your ‘Intelligence’ is Your Biggest Handicap Warren Buffett famously observed that it takes no more than average intelligence to become a successful investor. I’d add something to that. I’d say high intelligence is actually a handicap to successful investing. Here’s why… When you are smart, you are used to being 100% correct. You just can’t take the possibility of being wrong. So you stick to your guns, even when the market is telling you otherwise. That’s why overeducated Wall Street analysts make such lousy money managers. And it is why hedge-fund managers who flaunt their intelligence inevitably flounder. Think about it this way… If high intelligence were the key to successful investing, top business school professors and economists would be the wealthiest guys on the planet. Instead, the Forbes 400 is populated by dropouts from places like Harvard (Bill Gates) and Stanford (the Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) guys). None could have gotten a job on Wall Street, let alone taught at a top business school. That’s also why poker players make the best traders and investors. They play each hand as it is dealt to them. If they get a bad hand, they fold. They play the investment game the same way. Perhaps that’s also why a former dean of Harvard College, Henry Rosovsky, observed about Harvard students: “Our A students become professors. Our B students go to law school. Our C students rule the world.” After all, it was those C students who stayed up all night playing poker with Bill Gates. So how can you use these “critically counterintuitive” rules to improve your investment returns? First, never bet too big on one idea. You may get lucky once. Maybe even twice. But your luck eventually will run out. And if you bet the farm, you are out of the investment game for good. Second, don’t delude yourself into thinking that you have special insight into the market. Bring that attitude to your investments, and you will have your head handed to you. And it’s not a question of “if” but “when.” Third, learn to think of your investments like a hand in a poker game. Up the ante when you are lucky enough to get a good hand. But also be prepared to fold – and to fold often. But above all, take the advice of a very wise trader who once said: “Some people are born smart. Some people are born lucky. Some people are smart enough to be born lucky.” Here’s hoping that you were born lucky! Until then, I wish you a very Merry Christmas and Happy Holidays.

Playing The Santa Rally With ETFs And Stocks

After a spectacular six-year bull run, the U.S. stock market got caught up in a nasty web of never-ending worries. It all started with the collapse in oil prices. Then came the instability in Greece, global growth concerns and the uncertainty of the Fed rate hike. Persistent weakness in China and the slump in commodities aggravated the woes. As a result, the S&P 500 and Dow Jones indices are trading in the red in the year-to-date frame, losing 1% and 2.3%, respectively. But the trend might reverse heading into the winter holidays if Santa pays a call. A Santa rally has gained coinage in the investment world, referring to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) and extending into the first two days of the New Year. According to the 2016 Stock Trader’s Almanac , the Santa Claus rally has yielded average positive returns of 1.4% in 34 of the past 45 holiday seasons since 1969. Other research also confirmed this trend. If we dig into historical data dating back to 1896, the Dow Jones Industrial Average has a track record of gaining an average of 1.7% during this seven-day trading period. And this has happened 77% of the time. Santa on The Way! The Fed has raised interest rates for the first time in nearly a decade with a dovish view for future hikes. It is a clear signal that the U.S. economy has largely emerged from the impact of a financial crisis supported by solid labor market fundamentals and a gradually increasing inflation rate. This in turn has lifted consumer confidence, providing a boost to the stock market, setting the tune for a Santa rally. This is especially true as the stock market gained momentum at the start of this week with both the S&P 500 and Dow Jones gaining 1.7% each. Further, year-end seasonal factors such as holiday optimism, tax-related affairs, people investing their Christmas bonuses, short sellers going on vacation, and the “January effect” added to the strength. As such, Santa seems to be just round the corner but the rout in commodities and the resultant stress in the junk bond space could block its way. Nevertheless, the oil price has rebounded slightly from their 11-year low, bolstering hopes of a bullish market. As hopes start building for a Santa rally, we have highlighted a trio of ETFs and stocks that could provide investors with happy returns in the coming days and weeks. ETFs to Buy While there are a number of ETFs that are expected to benefit from the Santa Claus rally, we have highlighted three growth funds that have a higher potential to move upward when the markets go up. These products have been leading the broad market by a wide margin and have a top Zacks ETF Rank of 1 or ‘Strong Buy’. Further, these provide a broad play across various sectors rather than specific ones. PowerShares Dynamic Large Cap Growth Portfolio (NYSEARCA: PWB ) This ETF provides a pure exposure to the large cap growth segment of the broad U.S. equity market by tracking the Dynamic Large Cap Growth Intellidex Index. The fund is widely diversified across 50 securities with each holding less than 3.5% of total assets. From a sector look, consumer discretionary takes the top spot at 32% while information technology, healthcare and consumer staples round off the next three spots. The product has accumulated around $415.3 million in its asset base and charges 58 bps in fees per year. It gained 6.4% so far this year. iShares Russell Top 200 Growth ETF (NYSEARCA: IWY ) This fund offers exposure to 139 large U.S. companies whose earnings are expected to grow at an above-average rate relative to the market. It is concentrated in the technology sector and the top firm – Apple (NASDAQ: AAPL ) – occupies 8.2% of the basket while the other firms hold no more than 3.4% share. Consumer discretionary, healthcare and consumer staples also receive double-digit allocation each. The fund has amassed $559.3 million in AUM and has an expense ratio of 0.20%. IWY is up 5.6% in 2015. First Trust Large Cap Growth AlphaDEX Fund (NYSEARCA: FTC ) This fund provides a slightly active choice as it uses the AlphaDEX methodology to select the stock. The methodology seeks to narrow the large cap space to only the best positioned growth companies, eliminating the bottom ranked 25% of the stocks. This approach results in a basket of 177 stocks, which are widely spread across various securities with none holding more than 1.21% share. More than one-fourth of the portfolio is skewed toward consumer discretionary, followed by information technology (19.5%), healthcare (13.5%), consumer staples (13.0%) and industrials (12.8%). The product has $714.8 million in AUM and charges 63 bps in annual fees. It added 3.2% in the year-to-date time frame. Stocks to Buy For stocks, we have chosen three top picks using the Zacks Screener that fits our six criteria: a Zacks Rank #1, a Growth Style Score of ‘A’, Zacks Industry Rank within the top 15%, positive estimate revision for the current year, market cap of over 1 billion and year-to-date price performance in excess of the broad market returns. Here are the three chosen stocks. American Woodmark Corp. (NASDAQ: AMWD ) Based in Winchester, VA, American Woodmark is a major manufacturer and distributor of kitchen cabinets and vanities for the remodeling and home construction markets in the United States. The company has seen solid earnings estimate revisions of 8 cents for the current quarter over the past 30 days and delivered positive earnings surprises in the last four quarters, with an average beat of 35.40%. The stock has a solid Zacks Industry Rank in the top 5% and has doubled its returns in the year-to-date time frame. Integrated Device Technology Inc. (NASDAQ: IDTI ) Based in San Jose, CA, Integrated Device is engaged in designing, developing, manufacturing, and marketing a wide range of high-performance semiconductor products and modules for the communications, computing, and consumer industries worldwide. The company has seen earnings estimates rising by a penny for the current quarter over the past 30 days and delivered average positive earnings surprises of 10.04% in the last four quarters. Further, Integrated Device has an Industry Zacks Rank in the top 15% and gained over 37% this year. Leidos Holdings Inc. (NYSE: LDOS ) Based in Reston, VA, Leidos Holdings delivers solutions and services in the national security, health, and engineering markets in the United States and internationally. It has seen earnings estimate revision of 3 cents for the current quarter over the past 30 days and generated an average earnings surprise of 22.44% in the last four quarters. The stock is up 27.3% this year and has an Industry Zacks Rank in the top 15%. Bottom Line As the positive momentum starts to build in the market this week, Santa might definitely be on the way to give bountiful gifts to investors and set the tone for the New Year. Original Post