Chasing Value: 2010 -- #5 Williams Company

The Williams Company provides thousands of miles of distribution pipeline for natural gas and has seen it's ups and downs over the years, but in the last year it has been mostly up. When I first suggested the stock it was trading for $13.77. At its recent high this past week it was $21.43 for a 56% gain.

It is highly unusual for me to propose investing in a stock that has gained so much. The following 22-year chart of WMB might shed some light on why. Even though I anticipate growth and stable income, as a value investor I feel safer protected by reversion to the mean.



In this case I think that "mean" is another 10 points, or 50% higher again, around $30. If you examine each of these common data points you will note that they are abnormally low for a company with recurring revenue generating a 19% return-on-equity paying a 2.06% dividend yield.

• P/E: 6.03
• Price to Cash Flow: 5.04
• Price to Sales: 0.69
• Price to Book:1.25

In fact if you doubled all of these figures they would still be far less than the market averages on all counts. Given that natural gas is currently trading at a depressed level; that we have an abundant national supply and it is likely to be a major factor in meeting the nations energy needs; Williams, providing a primary transportation network should be rewarding shareholders for decades.

Williams Company ended the trading day, December 28, 2009 at $21.25.

For the other nine picks see: Chasing Value: 10 Stock Picks for 2010

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 WMB and BRK.B.