It was the very first stock I ever bought.
I mentioned it in passing in a recent article on how to cope with a stock market downturn.
The stock in question, an Atlanta-based power firm, has been operating under a bit of a cloud recently because of a disagreement involving an ongoing nuclear power plant project.
But it holds a special place for me: Back in 1987, it was the first stock I ever bought.
That was the year of the “Great Crash of ’87” – a 508-point, 22.6% plunge in the Dow Jones Industrial Average.
It was a scary moment that turned many folks against stocks – a lot of them forever.
For me, it was just the opposite.
My First Stock
I was drawn to the stock market.
I tracked down a broker and opened my first trading account.
And I bought my very first stock, an out-of-favor utility called Southern Co. (NYSE: SO).
I still own some of the shares, bought that November for an adjusted (for splits and dividends) price of about $1.30 a share. It now trades at roughly $45.
That first purchase did more than turn me into a real investor – it also shaped the philosophy I’ve carried with me ever since.
I flat out feel more comfortable finding stocks that are out of favor – either beaten down to bargain levels, or ones whose huge upside just hasn’t been recognized yet.
As is so often the case, life has come full circle.
Southern Co. is out of favor again.
It’s building two new nuclear reactors at its Vogtle site in Georgia. In August, the company said the project’s sticker price was rising by $2.3 billion. That meant the project group had to agree to proceed via a formal vote.
Early last month, after what Forbes described as “several days of drama,” the company and its partners – Municipal Electric Authority of Georgia (22.7%), Oglethorpe Power Corp. (30%), Dalton Utilities (1.6%), and Southern’s Georgia Power unit (45.7%) – voted to move ahead.
It’s a complicated deal and has weighed down Southern Co.’s stock price because of Wall Street’s belief that the project will never get done. But that means there’s a hefty upside should the power plant be completed – and very little downside.
And there’s a very good chance the project will come online. This past summer, China National Nuclear Power Co. successfully started up a reactor using the same AP1000 technology; it’s loading fuel at another site for possible launch this year, Roger Conrad, a utility expert, wrote in the Forbes piece.
“Like Vogtle, these facilities also cost much more and took far longer to complete than expected,” Conrad wrote. “But their start-up demonstrates that the technology works, if builders can see the projects through.”
Let’s take a look at the fundamental and technical “investment cases” for Southern Co…
Scoping Out a Stock to Buy
Southern currently trades at a 15.42 times forward 12-month earnings, compared to 17.61 times for the Dow Utility Average.
Southern currently features a hefty dividend yield of 5.07%. That’s well above the Dow Industrial yield of 2.12% and Dow Utility yield of 3.18%.
Those are super numbers.
And here’s one more.
It’s our proprietary VQScore – the “one-number” buy signal we developed here at Money Morning.
We track the 1,500 most profitable companies on the market and assign each one a VQScore. To get the score, we use a proprietary formula that reveals the stocks ready to far outperform “average” returns.
The “Prime Directive” here was to make the process as simple as possible.
Basically – and we do this every single day – we run thousands of stocks through the VQ system, and we plot those stocks in one of four quadrants along two axes – one being “demand” and the other “value.”
Stocks in Quadrant 4 – the spot occupied by Southern – are considered the “Best of the Best.” We like to say these stocks are in our “Buy Zone.” The “one-number” score here will be 4.00 or higher.
Southern Co.’s VQScore is 4.75.
Conrad, the Forbes columnist and utility expert, agrees with our assessment. He says that Southern, currently trading at $45 a share, is a “Buy” all the way up to $50.
We view Southern as a “Buy” – or an “Accumulate.” If you’re looking at this as a kind of “action to take,” we’re saying to buy the stock here and keep adding to it – taking advantage of the firm’s “dividend reinvestment plan,” or DRP.
Consider what Conrad wrote in his Forbes analysis.
“For disclosure purposes, I’ve owned this stock through its dividend reinvestment plan since the late 1990s,” he wrote in that early October story. “My return over that time is currently 740%, or 10.7% a year with a roughly 85% increase in dividends.”
As I noted earlier, I’ve owned the stock since 1987 – and the returns have been huge. Now trading at $46.50, the stock has been as high as $53.51. Over time, it’ll get back there. In the meantime, you’ll earn more than 5% a year on your money.
That’s what I call getting paid while you wait.
— William Patalon III
Source: Money Morning