Exelon Corporation (EXC): An Opportunity To Make 18% a Year On a Utility Stock

Page 1 of 2

Exelon Corporation (NYSE:EXC)Exelon Corporation (NYSE:EXC), a utility services holding company, engages in the energy generation and distribution business in the United States. Exelon is one of the “cleanest” power producers in the country. About half its fleet is nuclear, a quarter is natural gas, and nearly 10% is hydro, wind, and solar.

The Opportunity

Shares of this energy giant have been declining recently. This decline is partly attributed to an overall downtrend in energy stocks, and partly attributed to certain concerns regarding the ability of the company to pursue its strategic goals, specifically in the uranium segment.

Obviously, Exelon Corporation (NYSE:EXC) isn’t alone in the utility energy business. Its two main competitors are Duke Energy Corp (NYSE:DUK) and Consolidated Edison, Inc. (NYSE:ED). But following Excelon’s sharp decline, I believe that at a current price of $30, Exelon Corporation (NYSE:EXC) is much more favorable than its peers for the following reasons:

  1. What separates Exelon from the field is that it produces electricity from both natural gas and nuclear power. In fact, Exelon is the largest nuclear power generator in the United States. This gives Exelon a competitive edge because it’s a low cost power producer. Duke and “steady Eddi,” on the other hand, don’t enjoy the benefit of producing electricity from nuclear energy.
  2. In early 2012, Exelon attained an electricity trading operation. That means, in addition to producing power, Exelon also operates a “trading desk” through which it buys and sells electricity to other providers. That’s important, because it allows Exelon to more fully exploit the price difference between gas and nuclear power. Again, Duke and Edison don’t have their own electricity trading desks. They pay for its services via a third party.
  3. Exelon is very cheap compared to its rivals. It currently trades at a forward price-to-earnings of only 13.5x. That’s cheaper than the P/E of 15x for both Duke and Edison. In addition, Exelon trades at a price-to-sales of only 1.1x. That’s dirt cheap, especially when you compare it to Duke’s 2.2x and Edison’s 1.5x.

Why not just buy shares for $30?

When this much skepticism enters the market, the premium on options in general — and put options in particular — rises exponentially. This means that investors are now able to take advantage of this scenario by selling put options and pocketing fat cash premiums on this trade. As of this writing, shares of Exelon Corporation (NYSE:EXC) are trading at $30.3 and the October $31 puts are selling for $1.85. This translates into an immediate 6% gain on your investment by waiting four months until the October expiration.

To put it differently, investors can act as an insurance company and collect a premium of $185 for each option contract they sell. This contract, in turn, obligates them to buy shares of Exelon Corporation (NYSE:EXC) on the expiration day of October if shares of Exelon are trading under $31. Repeat this trade 3 times a year, and you will have an 18% return annually.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!