Look for AEP to continue to electrify investors

Posted Sep 8th 2009 5:15PM by Joseph Lazzaro
Filed under: Stocks to Buy

The U.S. electric power generating sector may be down, due to the recession and a cooler-than-normal summer across much of the U.S., but it's not out.

Hence, it goes without saying that I'm reiterating my Buy rating for American Electric Power (NYSE: AEP), first recommended on May 4, 2009 at a price of $25.38.

AEP's above-average total return on equity story remains intact. Look for the decline in retail electric demand to end in FY2009, and that fact, combined with a decline in operating/maintenance costs, and little impact from greenhouse gas legislation until about 2015 or 2020, translates into a bargain stock at a P/E of about 11. The First Call FY2009/FY2010 EPS estimates for AEP are $2.88 to $3.04.

Stock Analysis: American Electric Power is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in AEP now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your AEP position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $12.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: AEP, American Electric Power, electricity, power company, PowerCompany