Rare is the day you should sell an electric power generation play, which is why I'm reiterating my buy rating for Dominion Resources (D), first recommended on May 8, 2009, at a price of $31.87. If you bought Dominion in May, you're up about 16%.
Dominion, a fully integrated natural gas and electric holding company, is on-track to register 2% to 4% revenue growth on higher utility revenue in F2009, but also aided by the completion of the Cove Point liquid natural gas facility. Debt reduction, as well as planned expansion of wind generation and other power projects, adds to the positive story. Dominion's annual dividend is $1.75.
To be sure, current U.S. electric power demand may be sluggish, due to the recession, but investors should view that as a temporary phenomenon. True, increased energy efficiency across the U.S. economy will be a trend for the next decade and beyond, but relatively low-cost electric power does not go out of style.
To be sure, Dominion is not as cheap as it was in May, but with a P/E of 11.5, it's still a bargain. The First Call FY2009/FY2010 EPS estimates for D are $3.23 to $3.25.
Technically, Dominion's stock chart is strong: an uptrend, with only minor, corrective pull-backs and a stock that accelerates quickly from the key, 50-day moving average -- a sign that institutional investors (IIs) are taking advantage of pull-backs to add to/establish their D positions. There will be psychological resistance at the $40 level, but this should prove to be minor. Look for a $50 Dominion stock price by the end of 2010.
Stock Analysis: Dominion Resources is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in D now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your D position before December 2009. Sell/stop loss if you were to buy shares in this company: $22.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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