Category Archives: ED

Chart of the Day: Consolidated Edison

Below is the annual 52-week low for Consolidated Edison (ED) from 1958 to 1968.  We’ve also included the 3-month Treasury Bill as a comparison to show how utility stocks perform against the backdrop of rising interest rates.

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In this example, the 3-month Treasury Bill increased from 1.77% to 4.31%.  Meanwhile, Consolidated Edison (ED) had a 52-week low range from $22.00 to $30.63.

Review: Consolidated Edison

On May 18, 2018, Consolidated Edison (ED) fell to a one year low.  This is a stock that we had evaluated back in September 2014, when ED was trading at $57.60.  At the time, we said the following:

“Based on the Altimeter,  ED is considered to be fairly valued at $54.18.  This fair value is strikingly similar to the Value Line [Investment Survey] assessment.  Also, according to the Altimeter, ED is considered undervalued at or below $44.00.  Since 1970, there have been six instances where ED has been undervalued and went to the opposite extreme of being overvalued.

Using the above Altimeter, our observation is that Consolidated Edison has had the tendency to decline from each peak to the corresponding undervalued level without exception.  Naturally, this may be the occasion when the exception occurs.  Until that time comes, we’re of the view that ED will decline to the lower ascending line by mid- to late 2015.  By that time, ED could be undervalued at the $50 level.”

Fast forward to the new 52-week low and we see ED trading at $73.55.  This begs the most obvious question, where did we go wrong?  After all, we missed out in nearly +78% of total returns in 4 years.  Below are the two most glaring errors that we made with many others waiting to be revealed.

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Quick Take: Consolidated Edison

“The valuation problem is far from academic: In recent years, some huge-scale frauds and near-frauds have been facilitated by derivatives trades. In the energy and electric utility sectors, for example, companies used derivatives and trading activities to report great ‘earnings’ – until the roof fell in when they actually tried to convert the derivatives-related receivables on their balance sheets into cash. ‘Mark-to-market’ then turned out to be truly ‘mark-to-myth.’”

Buffett, Warren. Berkshire Hathaway. 2002 Letter to Shareholders. February 21, 2003.

Utility Stocks and Rising Interest Rates

Every stock market investor should be concerned about the impact that rising interest rates might have on future investment returns.  The prevailing theory is that when interest rates rise then stock prices should decline due to the impact to earnings from higher borrowing costs.  Since we are at or near the lowest level in interest rates, conventional wisdom suggests that eventually interest rates will rise.

With rising interest rates, investors should expect that stock prices will decline as per share earnings are reduced.  One industry that borrows heavily for going operations is the utility sector (electricity, water, gas etc.).  This article will give a cursory examination of utility stocks from the beginning of a rising interest rate cycle to the peak (1939 to 1980).  We will attempt to determine if the conventional thinking on rising interest rates and their impact on utility stocks is correct.

AquaAmerica Has Prevailed…So Far

On November 29, 2009, in an article titled "What About Utilities?", we submitted our thoughts about the merits of buying the electric utility Consolidated Edison (ED). Our response was that, in terms of a company in the exact same industry group, Southern Company (SO) was probably the best peer to choose from. In addition, we indicated that, although not in the exact same industry group, AquaAmerica, Inc. (WTR) was a far superior alternative to Consolidated Edison (ED).
Below is a chart of the performance of all three stocks from November 30, 2009 to December 3, 2010. It should be noted that the chart only reflects the change in price and not the dividends paid.
As you can see, AquaAmerica, Inc. (WTR) came out on top by generating a return of 32.23% in the last year. Second in the ranking was Southern Company (SO) which returned 18.79%. Finally, Consolidated Edison (ED) returned 14.24%. If viewed strictly on a price appreciation basis, AquaAmerica exceeded the return of Consolidated Edison by more than double.
When analyzed from the more relevant basis of total return (dividend plus price appreciation), the performance was as follows:
  • WTR-36.50%
  • SO-25%
  • ED-20.32%
We invite the curious to re-read the piece we wrote (located here) at the time to gain the “insight” that we were trying to convey. That “insight” is to always seek the best alternative. To the New Low team, the best alternative is the stock nearest the low that has the most viable upside prospects. Those that wish to suggest that “…no long-term holder of stocks would care about the one-year performance of a utility...” are correct. However, what we are trying to demonstrate is the value of assessing the proper time to buy.
Although we outlined our rationale for selecting AquaAmerica over Consolidated Edison, we’re more than willing to submit to the idea that we’re just lucky. As my economics professor used to say, “It is better to be lucky than smart.”

Please revisit New Low Observer for edits and revisions to this post. Email us.

Watch List Update

This week the market took me by surprise. The Dow rose 4%. My watch list shrank from 15 companies to 11 companies. Here are the companies on my watch list as of July 24, 2009.
Dividend Achiever Watch List

Nasdaq 100 Watch List The companies that are within 10% of the low offer a great opportunity to do research and consider buying.

Market Action

The biggest development was the Dow Theory confirmation of a bull market that occurred on Thursday. The Transports confirmed the Industrials with a big move (see charts below).With this action, Richard Russell recommended people to buy Goldman Sachs (GS). I would suggest you consider either the names I recommended on this blog in the watchlist above or the Dow index (DIA) or S&P 500 index (SPY).

Recent Analysis

On July 22, 2009, I wrote an article about the current market and a comparison to the 1980's. It also contained some information and important news on real estate. Also, I did a review of my investment strategy for the Dividend Achiever Carlisle (CSL) on the July 23rd. It was a great position for those who followed my advice.

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