Volatile Markets: Huaneng Power (HNP) is my pick for the next 50 years

Posted Aug 16th 2007 6:29AM by Sheldon Liber
Filed under: Google (GOOG), China, Market Matters, Consolidated Edison (ED), Duke Energy (DUK), ETF Investing, Huaneng Power Intl ADS (HNP), Bargain Stocks, Chasing Value™, Stocks to Buy

HNP vs. GOOG If I had to pick a stock to buy and hold for the next 50 years, Huaneng Power International Inc. (NYSE: HNP) would be one of my top candidates. As the largest utility in China, it will participate in the nation's growth no matter what form it takes.

Imagine buying Consolidated Edison (NYSE: ED), Pacific Gas & Electric Corp (NYSE: PCG), Duke Energy (NYSE: DUK) or the Southern Company (NYSE: SO) when they were in their infancy. Now imagine that they were all one company and the growth curve was compressed into one third the time. If you can visualize this picture then you can understand why I favor HNP. I have been banging the HNP drum for a long time --see Huaneng Power: Get into China for 2007 -- and last year I wrote GOOG is OK but HNP could be better! As it turned out, HNP was better then and it is better now! The chart shows a comparison of both stocks' performance over the last year. Google Inc. (NASDAQ: GOOG) did very well, but HNP did about 24% better, including the dividend.

Huaneng Power closed Wednesday at $39.01. It traded down to $38.00 after hours. It is currently paying about a 3.5% yield, with a price-to-sales and price-to-book floating around 2. In addition to everything I have pointed out here and in the two previous stories, keep in mind that this company has room to grow 500% or more with nothing to get in its way except construction time and the normal economic swings that expanding economies are bound to have.

Can Google or any other companies you can think of claim this level of opportunity? Utilities collect money in good times and bad. If someone built 1,000 homes and 100% of them were foreclosed on for any reason you choose, HNP would just collect its money from the new owners that acquired the properties. The power company is at the heart of all modern development. HNP is China's largest power company and the government is integrally involved in HNP's success.

We bought Huaneng Power at $26.50, so it is not the steal it was then when the metrics were even better and our dividend yield was closer to 5%. As they say it may not be wise to try and catch a falling knife, but I think that if you bought today at a 26% discount to its 52-week high of $48.30 and you make it a core holding in your portfolio, you will be well rewarded in the long run.

Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well - INCLUDING ANY BAD CALLS.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

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