The Southern Company – and Other Utilities

The Southern Company started 2004 with a valuation of $33 a share. It has paid 41 dividends in the last ten years and currently has a dividend yield of just less than 5%. Its quarterly dividend has crept up from 35 cents a share a decade ago to 50 cents share today. A threat to the value of this stock is the prevailing interest rate. When the Fed started talking about reducing the quantitative easing stimulus program in May of 2013 interest rates went up a bit and the value of the Southern Company fell from its peak of $48 to its current value of $40 a share. As the Fed backs off of its stimulus program we can expect to see interest rates go up farther and we can expect to see the price of Southern Company stock fall farther. However, the dividend that this utility pays comes from a very stable business that will not suffer unduly if the Fed backs off its stimulus program as the economy improves. If the stock falls another $10 a share it will be paying a dividend of more than 6%. Our belief is that The Southern Company belongs in your list of possible stock picks for 2014, once interest rates rise and the market falters.

Here are a few more utilities to consider:

Other factors to consider when including utilities in your stock picks for 2014 are that these are largely recession proof stocks. If things go bad in China, people in the USA still need electricity for their homes. Energy costs have gone down with the advent of sustainable fracking technology which fact benefits all utilities.

What Constitutes a Vulnerable Stock?

Your stock picks for 2014 should not include vulnerable stocks. A time honored way to pick stocks is to look a recent profits and quality of management. A contrarian view is to look at the strength of a brand name. For example, Coca Cola can make a lot of mistakes and even have a bad quarter and the entire world still recognizes and wants a Coke. Microsoft is not growing rapidly but it is an institution that is largely recession proof. On the other hand Apple is riding a wave of success and needs to pull a magic rabbit out of the hat every year to stay on top. Consider these thoughts when choosing Coca Cola – KO, Apple – APPL or Microsoft – MSFT for your stock picks of 2014. And, by the way, there is nothing wrong with investing in beer or other things that people consume during both good and bad times!

More Resources

Turning from a Growth Stock to a Stalwart

We mentioned Microsoft in bringing up the issue of whether or not it is time to sell Apple. Microsoft grew over 2000 fold before falling during the dot com bubble burst. Thereafter the stock has traded in the 40 to 30 to 20 to 35 dollar range. It pays a good dividend. However, Microsoft is no longer a growth stock. The same may still apply to Apple. If you are in Apple and consider it a growth stock it may be time to sell Apple. On the other hand if you like strong dividend stocks that control their sector of the market Apple may well be a good bet for years to come. If you like investing in companies with cash Apple is your baby. There are many ways to build a margin of safety for a company but money in the bank is probably the best. At nearly one hundred fifty billion dollars Apple has roughly a tenth of all the cash reserves of all US companies.

Memories of Debt

As rich as Apple is today it is easy to forget when Steve Jobs went hat in hand to Bill Gates to get a $150 million cash infusion to keep Apple afloat. This was just fifteen years ago. Currently Carl Icahn is trying to convince Apple to buy back stock and take on debt to do so. In our opinion this will not happen. Apple was too close to oblivion within the working lives of many of the top folks at Apple and the huge cash reserves that the company has built up are likely intended to insure that they never need to beg for money ever again. Beside, roughly two thirds of their reserves are offshore and to repatriate those reserves Apple would need to pay roughly $30 billion in taxes. Apple will likely remain very profitable but not grow all that much. Thus it may be time to sell Apple if you only want a growth stock and time to purchase more if you want a strong company with good earnings into the far distant future.

More Resources

When Do Companies File SEC Financials?

Companies typically file their quarterly financial reports with the Securities and Exchange Commission after the US markets have closed. This allows investors to digest the news before the next trading day. It helps avoid knee jerk responses based on panic when earnings of a big company fall by a fifth as in the current gigantic Google goof. However, losing a fifth of your earnings is not a technical glitch and, even if the filing had gone as scheduled, the result would likely have been an opening gap down for Google stock in response to poor earnings in the third quarter.

Why Did Google Profits Drop?

The move from desktop and lap top computers to mobile devices like Blackberries and iPhones has reduced profits for Google. Basically, mobile device ads make less money so the Google Pay Per Click business is suffering (off fifteen percent for the quarter in question). Part of this, however, is a matter of playing catch up. Programmers need to improve formatting and presentation on ads that appear on mobile devices. When that is accomplished, one can expect that Google will regain some of its lost revenue. In the meantime Google and Apple are at war over control of the mobile device world. To the extent that Apple successfully defends it patents against other device makers it may adversely affect Google which supports the Android platform. If Google loses badly in the patent wars could it be another gigantic Google goof and no longer a good stock investment?

How About Motorola Mobility?

The Google purchase of Motorola Mobility was for the Motorola treasure store of patents. However, the internet giant has had no better luck running the company than its former directors. Losses at the US cell phone maker were over $150 million in the quarter in question, much worse than expected and another aspect of the gigantic Google goof.

Buy When There Is Blood in the Streets

If you believe that the gigantic Google goof was basically human error in filing too early you may want to pick a few shares of GOOG while the price is down.  Fundamental analysis tells us that Google is a strong company with a good business plan and search market dominance. But, the world changes. The global economy is still unsteady despite an improving picture in the USA. Consumers may hold off on buying and using high end electronics affecting profits at both Google and Apple.

More Resources