Opinions
Michael Simpson, CFA
Algonquin Power & Utilities Corp
AQN-T
BUY
Jul 04, 2019
Stock price when the opinion was issued
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Today's disappointments are tomorrow's opportunities. He's looking at water utilities, a business that won't go away. He's waiting for a plan from the new management team. Once we get it, the stock will re-rate back to an acceptable range, with double digits over 5 years very possible.
Tough go due to capital structure and cost overruns. Needs to get the dividend, cashflow, and balance sheet straightened out. Not looking at right now. If you own, consider harvesting a tax loss if you can and redeploy into other names.
Likes the power space in general. See his Top Picks.
Probably a more positive outlook for 2025 than in 2024. A warning for those who invest just for the dividend; high yield doesn't always mean the stock price is safe. Beaten up already, and then tax-loss season came along.
Peeling back the layers, it's still well run. At these levels, don't buy it for income. You're buying for growth. In the medium term, there are growth opportunities here.
Definitely undervalued, trading at a lower multiple than peers. Lost all credibility. If it's in a non-registered account and you can bank the tax loss, sell. If in a registered account, perhaps wait until the new year because tax-loss selling may be putting extra pressure on the stock price right now; could see a bit of a bounce in the new year.
FTS and BIP.UN are his go-to names in the space.
He has a small position, accumulating on weakness for the better part of 2024. The whole sector of alternative energy has taken a back seat with the Trump administration. The whole ESG segment has been underperforming. So it's definitely challenged. He doesn't know when a catalyst might arrive and bring this back to life.
With a name like this, you have to think about a 5-10 year horizon. As Buffett says, when there's blood in the street, that's where the opportunity is.
Dividend investing is for 30, not 3 years, to survive ups and downs. AQN has been very difficult in the last 3-4 years. But new management has sold off their renewables business. Also, he's very positive with companies that have a lot of US business, like AQN. When a re-rate comes, things will start to move up all at once. He sees upside in AQN, though doesn't know where. His average cost base is $12, and he's been buying all along.
A tough one. A utility is supposed to be slow and steady, and they cut their dividend twice already. They had too much debt and sold assets to pay it down. The stock is now bouncing, and they pay some dividend, while the PE has changed a lot. Maybe the worst is over, but Fortis is a better choice.
Bounced off the bottom; actually one of the best-performing utilities because it traded so low for such a long time. Attempt to acquire Kentucky Power was bad timing with interest rates going up. Host of other issues, market penalized them, and it continues to do so.
But if you look at it today, it's working hard to transform itself to a pure-play distribution utility (similar to EMA or FTS). That's the cheapest type of utility to own. Sold renewable assets. Still owns hydro, but that's a small percentage of assets. Likes diversity of jurisdictions. About 10-20 rate cases under review; as they get approved, will see uptick in earnings. New CEO, activist investor.
Believes all the negative news is out of the name. If you have the patience, there's only upside from here. As company continues to execute, positive investor sentiment should come back. Different company than it was 2 years ago.