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Watching one of your largest holdings go up in value is a vision of joy. The same is not true on the way down. Huaneng Power ADS (NYSE: HNP) is indeed way down from its high of $57.50. I recommended the stock last year at $26.50 and looked brilliant until last month when it completed retracing its upward trajectory back to that level.
The company reported an 80% drop in earnings attributed to higher coal costs Tuesday. However, today the value buyers must be back in droves because the stock closed up almost 16% as one of the day's big movers. The stock closed at $30.25, up over $4 per share. The following three-year chart captures the drama.
The reduced profit margins ran contrary to the company's growth, having produced about 19% more power. I have been buying the stock recently, a little early, but I am a believer in the long term story and I am on record that Huaneng Power will have a 50-year run as the largest utility in China.
This coming year it is pledged to contain (not control) coal costs. In the mean time, the stock is paying over a 6% yield. That's pretty compelling when US banks have been lowering rates on deposits along with the Fed rate and shrinking dollar.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of HNP.
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