Suburban Propane Partners (SPH): Psych 101

Posted Sep 26th 2007 8:30AM by Hilary Kramer
Filed under: Hilary On Stocks, Stocks to Buy

This is the second in a series of trend-spotting tips from Hilary Kramer's newly-released book, Ahead of the Curv e.

One of the key tips in my recent book on trends is a point that informs all the rest of my thinking about investing: The market is driven by psychology. Companies make their profits by figuring out what people want, and what people want is influenced by their feelings and emotions. In turn, the stock market is driven by impulse and emotion. A savvy student of human nature can use this fact to boost his or her portfolio.

Take a company like Suburban Propane Partners (NYSE: SPH), which I've recommended several times now. There are several "Psych 101" reasons I like this stock. One is that once a customer has signed on with a propane service, he or she tends to find the process of switching suppliers too onerous to bother. This allows a company like SPH the ability to preserve its revenues and even to charge higher rates than one might expect.

As we look forward to SPH's future, we can again apply this psychology trend tip. With gas and oil prices climbing again, customers will be looking to save fuel costs. I've always thought SPH has been hurt somewhat by the fact that propane service requires having a big ugly tank outside your house; many people I know cite these tanks as the reason they don't get propane. But with costs of other types of fuel rising, I think we'll see more and more people bite the bullet and accept the tanks to use a less expensive fuel like propane.

This is the second "Psych 101" reason I think this stock is going to perform well. People are influenced by their pocketbooks. When cost of a product gets too great (like expensive heating oil), it is amazing what people will tolerate (like ugly propane tanks) in order to save money. It wouldn't surprise me to see SPH's customer base and revenues increasing over the next twelve months.

Type of Stock: A boring and well-managed propane company that has been growing nicely and which provides a hefty dividend.

Price Target: In August I suggested that any price under $45 would prove to be a good entry point for this one. I still think so, and I think 2008 could be a great year for Suburban Propane.

Hilary Kramer,author of the newly released Ahead of the Curve, is a financial editor and money coach for AOL and an authority on investing. Visit her at www.hilarykramer.com.

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