U.S. market indexes had mixed performances on Wednesday morning as investors weighed news from major companies and signs that economic growth may be slowing.
The Dow Jones Industrial Average was down 0.3% on Wednesday, while the S&P 500 fell 0.2% and the Nasdaq Composite rose 0.2%.
Although volatility persists due to high inflation, rising interest rates, the war in Ukraine and continued supply chain disruptions, gurus are still finding value opportunities among utilities companies as electricity and other amenities will remain in demand regardless of economic conditions.
Besides the energy sector, which has made a resurgence so far this year with a gain of 47.10%, the utilities space has also done well year to date with a 3.91% return.
According to GuruFocus’ Hot Picks, a Premium feature based on 13F filings, the utilities companies most-bought by gurus during the first quarter of 2022 included UGI Corp. (UGI, Financial), Constellation Energy Corp. (CEG, Financial), Otter Tail Corp. (OTTR, Financial), NRG Energy Inc. (NRG, Financial) and Sempra Energy (SRE, Financial).
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
UGI
Held by 10 gurus with a combined equity portfolio weight of 2.50%, eight buys and two sells were recorded for UGI (UGI, Financial) in the first quarter.
The King of Prussia, Pennsylvania-based natural gas and electricity distributor has a $9.35 billion market cap; its shares were trading around $43.93 on Wednesday with a price-earnings ratio of 6.36, a price-book ratio of 1.55 and a price-sales ratio of 1.05.
The GF Value Line suggests the stock is fairly valued currently based on historical ratios, past financial performance and future earnings projections.
GuruFocus rated UGI’s financial strength 5 out of 10. Despite the company issuing new long-term debt over the past several years, it is manageable due to adequate interest coverage. The Altman Z-Score of 1.93, however, indicates it is under some pressure due to losses in operating income.
The company’s profitability fared better, scoring a 7 out of 10 rating on the back of operating margin expansion and returns on equity, assets and capital that outperform a majority of its competitors. UGI also has a moderate Piotroski F-Score of 6 out of 9, which suggests conditions are typical for a stable company. Although the company has recorded a decline in revenue per share over the past several years, it still has a predictability rank of one out of five stars. According to GuruFocus research, companies with this rank typically return an average of 1.1% annually over a 10-year period.
Of the gurus invested in UGI, First Eagle Investment (Trades, Portfolio) has the largest stake with 4.09% of outstanding shares. Diamond Hill Capital (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Steven Cohen (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Steven Scruggs (Trades, Portfolio), Keeley-Teton Advisors, LLC (Trades, Portfolio), John Hussman (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) also have positions in the stock.
Constellation Energy
Recording seven buys and five sells for the fourth quarter, eight gurus are invested in Constellation Energy (CEG, Financial). The combined weight in their equity portfolios is 2.86%.
The natural gas supplier headquartered in Baltimore, which offers clean energy and sustainable solutions to homes, businesses, the public sector, community aggregations and a range of wholesale customers, has a market cap of $21.74 billion; its shares were trading around $64.58 on Wednesday with a price-earnings ratio of 148.22, a price-book ratio of 1.96 and a price-sales ratio of 1.96.
The stock has climbed more than 50% since being spun off of Exelon Corp. (EXC, Financial) earlier this year.
Constellation Energy’s financial strength was rated 4 out of 10 by GuruFocus on the back of weak interest coverage and a low Altman Z-Score of 0.75, which warns the company could be at risk of bankruptcy. The return on invested capital is also overshadowed by the weighted average cost of capital, meaning the company is struggling to create value as it grows.
The company’s profitability scored a 3 out of 10 rating as margins and returns are underperforming over half of its industry peers. Constellation has also recorded a decline in revenue per share.
With a 0.42% stake, Cohen has the largest position in Constellation Energy. Other gurus invested in the stock are Donald Smith & Co., Louis Moore Bacon (Trades, Portfolio), Simons’ firm, Joel Greenblatt (Trades, Portfolio), Grantham, Ken Fisher (Trades, Portfolio) and Hussman.
Otter Tail
Otter Tail (OTTR, Financial), which recorded six buys and two sells for the first quarter, is held by eight gurus with a combined equity portfolio weight of 0.34%.
The Fergus Falls, Minnesota-based company, which provides electricity and energy services to customers in Minnesota, North Dakota and South Dakota, has a $2.83 billion market cap; its shares were trading around $68.10 on Wednesday with a price-earnings ratio of 13.02, a price-book ratio of 2.70 and a price-sales ratio of 2.17.
According to the GF Value Line, the stock is fairly valued currently.
GuruFocus rated Otter Tail’s financial strength 5 out of 10. Although the company has issued new long-term debt in recent years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 2.03, however, indicates the company is under some pressure due to assets building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, meaning value creation is occurring.
The company’s profitability fared better with an 8 out of 10 rating, driven by operating margin expansion, returns that are outperforming versus competitors and a high Piotroski F-Score of 7, which means conditions are healthy. Otter Tail also has a one-star predictability rank.
Gabelli is the company’s largest guru shareholder with 0.85% of its outstanding shares. Otter Tail is also being held by Simons’ firm, Hotchkis & Wiley, Paul Tudor Jones (Trades, Portfolio), Greenblatt, Caxton Associates (Trades, Portfolio), Mairs and Power (Trades, Portfolio) and Hussman.
NRG Energy
With the number of buys and sells both equaling five for the quarter, nine gurus have positions in NRG Energy (NRG, Financial). They have a combined portfolio weight of 5.61% in the stock.
The integrated power company headquartered in Houston, which generates electricity via nuclear, coal, natural gas and oil resources, has a market cap of $10.95 billion; its shares were trading around $45.94 on Wednesday with a price-earnings ratio of 2.81, a price-book ratio of 2.19 and a price-sales ratio of 0.42.
Based on the GF Value Line, the stock appears to be significantly undervalued currently.
NRG Energy’s financial strength was rated 5 out of 10 by GuruFocus, boosted by a comfortable level of interest coverage. The Altman Z-Score of 2.12, however, indicates the company is under some pressure currently. The ROIC also exceeds the WACC, so value is being created.
The company’s profitability fared even better, scoring a 7 out of 10 rating on the back of operating margin expansion and returns that top a majority of industry peers. NRG also has a high Piotroski F-Score of 8 and a one-star predictability rank.
Of the gurus invested in NRG Energy, Richard Pzena (Trades, Portfolio) has the largest stake with 7.70% of its outstanding shares. Grantham, Leon Cooperman (Trades, Portfolio), Hotchkis & Wiley, Greenblatt, Simons’ firm, Keeley-Teton, Hussman and Dalio also own the stock.
Sempra Energy
Held by five gurus with a combined equity portfolio weight of 2.20%, Sempra Energy (SRE, Financial) saw five buys and four sells in the first quarter.
The San Diego-based energy infrastructure company has a $51.45 billion market cap; its shares were trading around $161.30 on Wednesday with a price-earnings ratio of 51.64, a price-book ratio of 2.05 and a price-sales ratio of 3.86.
The GF Value Line suggests the stock is fairly valued currently.
GuruFocus rated Sempra Energy’s financial strength 4 out of 10. As a result of issuing approximately $2.2 billion in new long-term debt over the past three years, the company has weak interest coverage. The Altman Z-Score of 1.11 also warns the company could be in danger of going bankrupt.
The company’s profitability scored a 7 out of 10 rating. Despite having an expanding operating margin, its returns are underperforming versus competitors. Sempra also has a moderate Piotroski F-Score of 5, but the one-star predictability rank is on watch.
With a 0.76% stake, the T Rowe Price Equity Income Fund (Trades, Portfolio) is the company’s largest guru shareholder. Sempra is also being held by Dalio, Simons’ firm, the IC Select Canadian Equity Fund, Greenblatt and Fisher.
Additional picks
Other popular companies that were bought by gurus during the quarter included Spire Inc. (SR, Financial), Consolidated Edison Inc. (ED, Financial), WEC Energy Group Inc. (WEC, Financial), Allete Inc. (ALE, Financial), NextEra Energy Inc. (NEE, Financial) and Northwest Natural Holding Co. (NWN, Financial).
