Stock of the Week
NYSE Symbol: D
Price as of 4/15: $77.42
The markets continue to rotate with techs and stay-at-home COVID related stocks succumbing to more profit-taking. Within tech, the FANG stocks have taken on the chin while rising interest rates have lifted the financial sector to new highs. Energy remains the top sector up 30% for the year thanks to growing enthusiasm for the reopening of the economy. The price of oil and energy stocks could remain strong throughout the year. Longer term, global economies are looking to transition to clean energy solutions and electric batteries. Doing so will create a large demand from the utility industry. However, the $500 billion utility sector has badly trailed the overall stock market of late with a negative year over year return verse a 24% return for the S&P 500 index. In the short term, defensive sectors like utilities may continue to underperform, particularly with interest rates rising, but longer-term utility stocks should perform well thanks to growing demand for green related energy. This week, we will highlight a utility stock with recent insider buying. The stock of the week is Dominion Energy.
The utility sector is well-positioned for the secular trend toward clean energy. The Biden administration's green initiatives should reinforce the trend toward renewable energy. The utility industry is expected to spend about $130 billion annually on renewable sources of energy, storage/ transmission facilities, and electricity distribution networks in the coming years. The Virginia-based Dominion Energy has recently announced a $72 billion capital investment plan for decarbonization by 2035. The plan, according to the company, should create 10% annual shareholder return for its regulated utility operations. The company plans to spend $32 billion from 2021 through 2025 to support its clean energy profile.
The utility sector and Dominion have underperformed since topping out in November. Recent insider buying at Dominion may indicate that the stock has reached a good value point. The President, CEO and Director, Robert Blue bought $1.1 million worth of stock in the $69 a share range. Dominion is not cheap trading for 18 times earnings, but the Wells Fargo analyst recently upgraded the stock pointing out the stock trades at a 12-15% discount to its peers. Dominion is not a growth stock but could be a good income stock with a 3.2% dividend yield with capital appreciation potential in the coming years as economies around the globe transition to more green energy.