What's going on with electric utility stocks?

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Retired1809
Posts: 316
Joined: Fri Feb 23, 2007 4:11 pm
Location: North Carolina, USA

What's going on with electric utility stocks?

Post by Retired1809 » Mon Mar 23, 2020 6:32 pm

I just noticed the two electric utilities I've been looking at (DUK and D) both declined 10% or so today and are down significantly from their highs earlier this year. Defensive stocks don't usually decline this sharply, this quickly. (Yes, I realize that we're in the sharpest, fastest declines in our lives for stocks in general.) Are there doubts that customers can pay their utility bills? I did notice that Trump's plan precludes utility companies from cutting off customers' power for nonpayment. Is that the problem? Mr. Market is either offering us an entry point to buy utilities or telling us that the economy is going somewhere that we've never been since the Great Depression. What are your thoughts?

annu
Posts: 405
Joined: Mon Nov 04, 2019 7:55 pm

Re: What's going on with electric utility stocks?

Post by annu » Mon Mar 23, 2020 7:12 pm

People are realizing toilet paper and tp stocks better ? :beer

Rosencrantz1
Posts: 314
Joined: Tue Sep 10, 2019 12:28 pm

Re: What's going on with electric utility stocks?

Post by Rosencrantz1 » Mon Mar 23, 2020 7:23 pm

Retired1809 wrote:
Mon Mar 23, 2020 6:32 pm
I just noticed the two electric utilities I've been looking at (DUK and D) both declined 10% or so today and are down significantly from their highs earlier this year. Defensive stocks don't usually decline this sharply, this quickly. (Yes, I realize that we're in the sharpest, fastest declines in our lives for stocks in general.) Are there doubts that customers can pay their utility bills? I did notice that Trump's plan precludes utility companies from cutting off customers' power for nonpayment. Is that the problem? Mr. Market is either offering us an entry point to buy utilities or telling us that the economy is going somewhere that we've never been since the Great Depression. What are your thoughts?
I don't have an answer, but, am very interested in the response from BH.

I own some VPU and some HE (Hawaiian Electric) and they're both down pretty significantly. Unexpected for what I thought was a 'defensive' sector... especially with lower interest rates. :confused

rasta
Posts: 196
Joined: Fri Jul 27, 2018 4:29 pm

Re: What's going on with electric utility stocks?

Post by rasta » Mon Mar 23, 2020 7:31 pm

utility stocks for the most part were also in a bubble, selling at
elevated p/e and price to book ratios. most are also loaded with too much debt.

Topic Author
Retired1809
Posts: 316
Joined: Fri Feb 23, 2007 4:11 pm
Location: North Carolina, USA

Re: What's going on with electric utility stocks?

Post by Retired1809 » Mon Mar 23, 2020 7:32 pm

I realize that the bull market ran prices of utility stocks to unrealistic prices. That was "then." This is "now," and we're in a bear market and Mr. Market is asking "What have you done for me lately?" But current yields on some quality electric utilities look good compared to money market funds racing toward zero and t-bills literally yielding zero. I'd love to hear thoughts on the Vanguard Utility ETF as well.

Northern Flicker
Posts: 5400
Joined: Fri Apr 10, 2015 12:29 am

Re: What's going on with electric utility stocks?

Post by Northern Flicker » Mon Mar 23, 2020 7:44 pm

Here is some info from Schwab analysts concerning sector outlooks and how they might have changed since the start of the crisis:

https://www.schwab.com/resource-center/ ... ctor-views
Risk provides no guarantee of return.

Grt2bOutdoors
Posts: 22231
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: What's going on with electric utility stocks?

Post by Grt2bOutdoors » Mon Mar 23, 2020 9:01 pm

Retired1809 wrote:
Mon Mar 23, 2020 7:32 pm
I realize that the bull market ran prices of utility stocks to unrealistic prices. That was "then." This is "now," and we're in a bear market and Mr. Market is asking "What have you done for me lately?" But current yields on some quality electric utilities look good compared to money market funds racing toward zero and t-bills literally yielding zero. I'd love to hear thoughts on the Vanguard Utility ETF as well.
As with any business, no one utility is the same. The utility stocks are being hit for liquidity reasons, business mix, generation mix, geographic location, debt/equity, source of earnings - stable/unregulated. Utilities today are not the "stodgy" companies of yesteryear, many of them operate separate and distinct businesses within service of energy in the form of electricity, gas or water. The Schwab write-up lacks substance and does not explain it even remotely close to what a person should be looking at when investing. Even holdings in an ETF will be subject to those same risks I've listed above, it's not sufficient to just say "I'll buy a basket and should be fine" - when the basket drops most of the eggs break along with it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Colorado Guy
Posts: 21
Joined: Sun Nov 05, 2017 1:57 pm

Re: What's going on with electric utility stocks?

Post by Colorado Guy » Mon Mar 23, 2020 9:18 pm

Just a thought....This could be a ripple effect from the recent SG&E bankruptcy proceedings. This morning was an article
"PG&E to plead guilty to 84 involuntary manslaughter counts over 2018 wildfire"

https://www.reuters.com/article/us-pg-e ... SKBN21A1TJ

This appears to be a result of past PG&E neglect of prudent industry maintenance practices of transmission lines. Is this an increase in liability exposure for utilities with significant transmission facilities?

Topic Author
Retired1809
Posts: 316
Joined: Fri Feb 23, 2007 4:11 pm
Location: North Carolina, USA

Re: What's going on with electric utility stocks?

Post by Retired1809 » Mon Mar 23, 2020 9:24 pm

Was the attorney named Saul Goodman?

Grt2bOutdoors
Posts: 22231
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Location: New York

Re: What's going on with electric utility stocks?

Post by Grt2bOutdoors » Tue Mar 24, 2020 3:20 pm

Colorado Guy wrote:
Mon Mar 23, 2020 9:18 pm
Just a thought....This could be a ripple effect from the recent SG&E bankruptcy proceedings. This morning was an article
"PG&E to plead guilty to 84 involuntary manslaughter counts over 2018 wildfire"

https://www.reuters.com/article/us-pg-e ... SKBN21A1TJ

This appears to be a result of past PG&E neglect of prudent industry maintenance practices of transmission lines. Is this an increase in liability exposure for utilities with significant transmission facilities?
No, the PG&E mess seems to point to a pattern of mismanagement. Weren't they the same utility that was the basis of the Erin Brocovich movie?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Northern Flicker
Posts: 5400
Joined: Fri Apr 10, 2015 12:29 am

Re: What's going on with electric utility stocks?

Post by Northern Flicker » Wed Mar 25, 2020 2:12 pm

The PG&E court case may have led to a re-assessment of the business risk of wildfires for the utility sector.

In any case, what has been going on is sector risk materializing. The best way to avoid sector risk is not be analyzing the sector and its component companies but by diversifying away the sector exposure.
Risk provides no guarantee of return.

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