However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares that might be on the rebound, examining one sector of the economy for companies with rising CAPS ratings.
Among the 168 stocks in CAPS' Utilities sector, we've unearthed a handful with top four- and five-star ratings. That means some of our 135,000 CAPS investors are confident that these stocks will beat the market in the months ahead:
| Company | CAPS Rating Today | Recent Price | 52-Week Price Change | Estimated Long-Term Growth Rate |
|---|---|---|---|---|
| Calpine (NYSE: CPN) | ***** | $10.72 | (47%) | 27% |
| Constellation Energy (NYSE: CEG) | ***** | $26.18 | (68%) | 15% |
| Duke Energy (NYSE: DUK) | **** | $14.61 | (16%) | 4% |
| Mirant (NYSE: MIR) | **** | $15.37 | (56%) | 26% |
| NRG Energy (NYSE: NRG) | ***** | $23.51 | (41%) | 6% |
Source: Motley Fool CAPS; Yahoo! Finance.
In this sector, you'll find local power companies like PG&E and Public Service Enterprise Group (NYSE: PEG), but also a new crop of power generators such as Clean Energy Fuels, through which T. Boone Pickens looks to make natural gas a key alternative for the country's automotive fuels.
Yet companies whose shares were considered essential investments for "widows and orphans" because they could depend on their dividends -- supposedly making up for their lack of growth potential -- have been lacking in both their payouts and their capital appreciation. Earlier this year, for example, Ameren cut its dividend by 40%; its stock price has dropped 42% over the past 12 months.
However, because oil prices could remain the driving force behind utility plays, the sector could have plenty of room to go up with the summer temperatures.
Some spring in its step
But that doesn't mean NRG Energy will give in to the demands of Exelon (NYSE: EXC), the largest utility by market capitalization, as it tries to force a merger. NRG Energy is one of four companies the Energy Department chose to divvy up $18.5 billion in federal loan guarantees, proving that its savvy development team can put plans on the table that are ready to launch. Exelon was frozen out of the program, which might explain why it has increased its offer for NRG Energy to $7.7 billion from $6.2 billion.
Because NRG Energy carries a multiple that's just 40% of the average utility's, it's easy to see why CAPS member JackCaps writes that it's undervalued.
NRG Energy is trading at about three quarters of book value with a P/E of about 5 (5/26/09). Annual revenues and operating income have grown steadily over the past few years with [selling, general, and administrative] expenses growing at a slower pace. NRG had no discernible flaws to these eyes, hence the outperform projection.
JackCaps also believes Mirant, at eight times earnings, is attractively priced.
GM should be so lucky as to come out of bankruptcy as well as Mirant has done since it emerged from Chapter 11 back in January of 2006. For the past ten quarters it has had earnings equal to 1.5 [times] the current stock price. If it were paying out those earnings at a 50% payout rate, the effective dividend yield would be about 30%. Two thumbs up for Mirant.
In the latest quarter, Mirant swung to a profit from a loss a year ago. Helped by a hedging strategy, Mirant's shares have staged a bit of a rally, rising 24% over the past three months.
The ball's in your court
There are many factors that go into whether a stock is a buy or a sell, so it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page. Head over to CAPS today and share your thoughts with others on whether you think these stocks are ready to go higher.
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