Companhia Paranaense de Energia (ADR) (ELP), Dynegy Inc. (DYN): Are These Really the Best Utility Stock Deals?

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There are two two major things I like about any investment: the prospect of cash dividends that are here to stay and getting a great deal that can appreciate in value over time. Utilities are well known for paying dividends and for being run conservatively enough to stand the test of time. In this case, I’ve run some numbers and found companies with low book value and earnings multiples. Beyond the numbers a screener tells you, though, are these companies really a great deal?

A serious contender in a fast-growing area

Companhia Paranaense de Energia (ADR) (NYSE:ELP), also known as Copel, was the first electricity-related company to be listed on the New York Stock Exchange. Since being listed on stock exchanges requires rigorous record-keeping and a significant financial expense, being listed on both the NYSE and the Madrid Stock Exchange tells me that Copel wants to be taken seriously as a company.

Companhia Paranaense de Energia (ADR) (NYSE:ELP) trades at 14.22 times its trailing twelve-month earnings, which is a discount versus the S&P 500’s average of 19.05 as of this writing. This provides a fair margin of safety if times get difficult and panic-selling drops more expensive stocks’ prices. What really impressed me from a valuation standpoint is that Copel is trading at only 80% of its book value. That means if someone were to take apart the company, they might theoretically be able to sell it for more than it’s currently trading for. This is a strong indicator of a potentially good deal. But the numbers aren’t everything.

Companhia Paranaense de Energia (ADR) (NYSE:ELP) operates in Brazil, one of the world’s fastest-growing economies. Serving customers from remote farmers to citizens in hundreds of cities and even industrial plants is how Copel shines as a power company (no pun intended). I’m not a huge fan of the fact that Copel is only turning an 8.2% profit margin, but that’s still not bad in an industry that frequently operates with single-digit profits. On the whole, I like Copel and recommend it as a solid investment prospect.

Bad luck gone right

Dynegy Inc. (NYSE:DYN)

Dynegy Inc. (NYSE:DYN) is the poster child of bad luck that turned out alright. Having originally started as an energy brokerage, it didn’t even enter the power generating business until the mid-90s. It almost got involved with some bad news in the early part of the 21st century, losing out on an attempt to purchase Enron in 2001. Talk about bad luck turning out well. Since then, Dynegy has focused the bulk of its efforts on generating power and has done well with it in spite of some setbacks.

Since 2002, Dynegy has terminated and sold off most of its non-core and all of its unprofitable businesses. They also restructured their debt and spent hundreds of millions of dollars to upgrade and repair their coal power plants to pollute less. The company fended off lawsuits alleging that Dynegy hadn’t informed investors of the potential for increasingly strict coal-related environmental regulations. Dynegy even spent some time in Chapter 11 bankruptcy before emerging in October of 2012.

As of this writing, Dynegy is trading right at its book value and at only twice its earnings, which is almost unbelievable when you consider that the company is pulling a 59.6% dividend. I always encourage further research, but it appears that Dynegy is a diamond in the rough that the market is simply shying away from because there were controversies in the past and because coal has become unpopular. Keep in mind that while Dynegy does own coal plants, its plants are operating well within environmental regulations and many of its other plants run on far cleaner natural gas. I absolutely recommend taking a very close look at and considering investing in Dynegy.

The guts of growth

There’s nothing quite like an exciting growth story, and Entergy Corporation (NYSE:ETR) has a particularly interesting one, as its first power plants ran on sawdust from a lumber company in Arkansas. From there, Entergy began using hydroelectricity, nukes and natural gas among other power sources. The willingness to adapt and engage new possibilities is the first thing that makes Entergy a potentially good investment.

The numbers say that Entergy Corporation (NYSE:ETR) is one of the better-valued of the Fortune 500, trading at only a little over 10 times its earnings and 1.3 times its book value. For a company pulling 11% profit margins and boasting a service area from Mississippi all the way to southeastern Texas, that’s pretty impressive. Yet again the numbers appear to support a company that appears to just be going unnoticed by the market at large.

This is a company that’s shown that it’s willing and able to grow and do different things. Just like with the other two companies we talked about a moment ago, Entergy Corporation (NYSE:ETR) is simply a solid but temporarily unpopular company.

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