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Black Hills Corporation: A Stability And Growth 2-For-1

Black Hills Corporation’s shares have become undervalued as a result of its oil and gas exposure. A healthy dividend yield and stable diversified cash flow streams make the Company an excellent anchor for investors. The oil and gas business segment is a free call option if the industry recovers. For a mixture of stability and growth, investors should snap up Black Hills’s shares. Utilities companies are some of the most stable companies in existence due to their inelastic consumer demands. Even during economic downturns, consumers will not save money by cutting off their water or heat; they will save money through other means. As a result, the cash flow is always running high for utilities companies, and by the same token, investors can always depend on a steady cash flow (in most instances). Utilities companies are what we might consider as defensible investments, in which investors invest in them to “defend” their investments against loss during economic downturns. However, as investors know, small cap companies offer investors higher-than-expected growth when compared against the S&P 500 and other similar market-wide indices. This is because small cap companies have more room to grow than their large cap counterparts. As such, investors’ capital has more room to grow with the growth of the small cap firms. Thus, when investors combine small cap growth with the stability of utilities companies, they get a hybrid small cap utilities company that can offer the best of both worlds: a medium to low-risk, medium-reward investment that can both generate capital appreciation with the added benefit of capital preservation and a steady quarterly paycheck that the company puts in your bank account. One small cap utilities firm, Black Hills Corporation (NYSE: BKH ), offers this opportunity for investors to simultaneously benefit from capital appreciation and capital preservation. Black Hills Corporation is a diversified utilities company that runs a variety of regulated electric and gas utilities subsidiaries. The Company serves customers in the Midwest and Rocky Mountain states, so the Company is specialized in a certain region. Black Hills Corporation’s business segments can be divided into three main segments: Power Generation, Coal Mining, and Oil & Gas. The Company has both cash cow businesses and high growth businesses, which is always a great way for investors to get in on that stable cash flow and share value growth. From just the stock chart, investors can see that the Company has returned a healthy return to investors: capital invested in the Company at the onset of 2011 has generated a return on investment of about 75%. Keep in mind that this number does not include dividends that the Company generates for shareholders. With a dividend yield of about 3%, the dividends add a substantial amount of return on top of the pure capital appreciation return. While it appears that the stock price has begun to stagnate and even slowly slip, that is more of a result of macro conditions than anything else-it is not Company-specific. Furthermore, the Company has oil and gas exposure, which has resulted in the Company feeling some of the pain from the collapse of oil prices a few years back. However, because the Company is diversified in several sub-industries, the Company has only suffered a little. From a technical perspective, the 50-day moving average has swung alongside the 200-day moving average for quite some time-the two continuously move back and forth. Most recently, the 50-day moving average has been below its bigger brother, but it appears that the spread between these two indicators is closing, which could indicate near-term upside. (click to enlarge) Source: Stockcharts.com From a fundamental perspective, what investors are looking at is an undervalued, cash-flow generating Company that has suffered from the setbacks in the oil and gas industries. Black Hills Corporation has its hands in a variety of submarkets within the utilities industry, including oil and gas, coal, electricity, and some other markets. The cash cow generating businesses include its Power Generation and Coal Mining businesses. These businesses provide ample cash flow for the Company to inject back into the Company for further growth and for the Company to return to shareholders as dividends. The fast growth segment is the Oil & Gas segment, which has been dealt a blow as a result of the collapse of oil prices. However, it is this segment that essentially gives the shares a free call option. This segment is subject to the volatility seen in the larger oil and gas industry, and this can be viewed as a negative. At the same time, it is important to remember that this greater volatility can swing the shares in the positive direction as well. Thus, Black Hills Corporation has a number of aspects that investors will find favorable. A strong dividend yield, excellent stable cash flows from diversified business segments, and a free call option in case the oil and gas industry recovers (which it probably will-the question is more when than if it will) all make the Company an excellent investment for long-term investors.

The V20 Portfolio Week #6: Shift In Portfolio Weights

Summary The V20 Portfolio declined 7.3% against S&P 500’s decline of 3.6%. The biggest position has been trimmed. No purchases were made for Conn’s as the stock has rebounded from its previous lows. Dex Media could be nearing the final verdict. The V20 portfolio is an actively managed portfolio that seeks to achieve annualized return of 20% over the long term. If you are a long-term investor, then this portfolio may be for you. You can read more about how the portfolio works and the associated risks here . Always do your own research before making an investment. Read last week’s update here ! The market has become bearish again. This week was one of the worst weeks for the averages in months, with the S&P 500 slipping 3.6%. Unfortunately, the V20 Portfolio followed suit with a decline of 7.3%. However, due to the strong performance in the previous week, the V20 Portfolio is still positive for the month while the index is down 2.6%. Portfolio Update As I mentioned in last week’s update, this week the V20 Portfolio had to endure its biggest test. Our largest position, MagicJack (NASDAQ: CALL ), reported earnings on Monday. Although initial reactions were positive, the stock has since declined 10% to $10.30. I have been talking about trimming the MagicJack position for a couple of weeks now. Third quarter results were the push that I needed. You can read my analysis of MagicJack’s current situation here . The bottom line is that the company has transitioned into a growth stock. Although I don’t like to admit it, core operation has deteriorated (i.e. lower renewal revenue), and if the trend continues, a significant amount of value will have to come from growth. Because third quarter results were not a “smash hit,” there was no reason to maintain a large position in MagicJack. After Q3 earnings, 50% of the position was sold, lowering the portfolio’s exposure from 39% to 19%. Although I trimmed the position, the company is still around 50% cash, so relatively speaking, the downside is limited. Furthermore, new developments (Hoteligent, Movistar partnership) added significant option value to the stock. If executed well, both partnerships could be highly profitable as there is minimal capital requirement. For that reason, I believe that a 19% weight on MagicJack is justified. Moving on to our now largest position, Conn’s (NASDAQ: CONN ). While I would be happy to add to the position if the stock was trading around $19 (as was the case two weeks ago), the fact that Conn’s has rebounded from its lows means that the stock has now become more expensive than before. For that reason, I’ve decided to stay put for now and wait for a better entry point. Although it is my hope that Conn’s will decline in the near future so I can pick up more shares at a cheaper price, the management is currently executing a share repurchase program, exerting upward pressure on the stock. This is probably the reason why the stock didn’t move much in comparison to its typical volatility (only declined by 4% this week). Looking Forward With earnings season now over, there won’t be as many decisions that we have to make in relation to our holdings’ fundamentals. Nevertheless, the stock market will continue to gyrate in absence of any news, so I will continue to monitor the portfolio and seek opportunities to trim or add as I have done with MagicJack this week. There is one thing that we can look forward to however. I haven’t talked too much about Dex Media (NASDAQ: DXM ) since the position is so small (0.4%). You can find a brief overview of the company in the portfolio introduction. The initial investment rationale was that there was a chance that restructuring could provide a favorable outcome for shareholders (e.g. extending maturity). Currently, the sentiment is very negative. Although there were no official news, the stock was down 50% on Friday on rumor that the company will be pushed into bankruptcy. I invested in Dex Media with the knowledge that there was a high risk of bankruptcy, hence I sized the position carefully, so I am not too concerned. Given current prices, it is clear that the market believes that equity holders will be completely wiped out in the resulting restructuring. Of course, if equity holders do get a stake or if maturities are extended, shares could appreciate significantly. With official filing expected in December (according to the rumor), this is definitely something that we should look out for. Given the portfolio’s current weight on Dex Media, this is really a situation where it’s heads I win, tails I lose very little. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Retail Investors Pull Back From Equity And Bond Funds

For the fund flows week ended November 11, the benchmark Dow Jones Industrial Average lost 165 points to settle at 17,702. Equity mutual fund investors made net redemptions of $1.7 billion for the week (of which $765 million was from large-cap funds), while equity exchange-traded funds saw net inflows of $643 million. A sour market in bonds (a decline of 0.64% for the week) may have led bond mutual fund investors to redeem shares. Overall, taxable bond mutual funds saw net outflows of $875 million for the week, which was the first outflow after four previous weeks of inflow activity. Money market funds saw net inflows of $6.5 billion, of which institutional investors added $11.3 billion and retail investors cashed out $4.8 billion. By Jeff Tjornehoj For the fund flows week ended November 11, the benchmark Dow Jones Industrial Average lost 165 points to settle at 17,702. Equity mutual fund investors made net redemptions of $1.7 billion for the week (of which $765 million was from large-cap funds), while equity exchange-traded funds (ETFs) saw net inflows of $643 million; investors backed out of the SPDR S&P 500 Trust ETF ( SPY , -$1.5 billion) and made modest contributions to the iShares Russell 2000 ETF ( IWM , +$1.6 billion) and the iShares MSCI EAFE ETF ( EFA , +$1.3 billion). A sour market in bonds (a decline of 0.64% for the week) may have led bond mutual fund investors to redeem shares. Overall, taxable bond mutual funds saw net outflows of $875 million for the week, which was the first outflow after four previous weeks of inflow activity. With no end in sight to the asset bleeding, Lipper’s Loan Participation Funds classification (-$213 million) marked 16 weeks of outflows by retail investors. Like their equity counterparts, high yield funds suffered outflows (-$543 million) among mutual fund investors, but unlike equities also saw net outflows on the ETF side (-$1.3 billion). Overall, bond ETFs saw $2.8 billion of net outflows. The week’s biggest bond ETF net outflows belonged to the SPDR Barclays Capital High Yield Bond ETF ( JNK , -$1.2 billion), while the iShares Core Total US Bond Market ETF ( AGG , +1.3 billion) led the net inflows list. Municipal bond mutual fund investors added $229 million net to their accounts, and those funds now have had inflows for six straight weeks – for their best showing since March. Money market funds saw net inflows of $6.5 billion, of which institutional investors added $11.3 billion and retail investors cashed out $4.8 billion. For more analysis please watch this video: