Timothy Wolf, who serves on the Board of Directors at Xcel Energy Inc (NYSE:XEL), bought 4,000 shares of the company’s stock on February 1st at an average price of $27.98 per share, according to a filing with the SEC. Xcel is an electric and natural gas utility operating in the United States. We keep track of insider trading activity because studies show that insider purchases are bullish signals, albeit somewhat weak ones (see our analysis of studies on insider trading). We think that stocks bought by insiders outperform because these people face incentives to diversify their wealth away from the company, and so buying shares suggests that there are confident enough to ignore the benefits of that diversification.
In addition to insider trading activity we also track filings from hedge funds and other notable investors. For example, in our August newsletter we were able to list the most popular small cap stocks among hedge funds, the idea being that these stocks are more likely to be mispriced and so fund research teams are particularly likely to find cheap picks; our portfolio went on to achieve an excess return of 18 percentage points between September and January (read more about our hedge fund strategies). Looking at recent 13F filings which included Xcel Energy Inc specifically, billionaire Israel Englander’s Millennium Management reported a position of about 800,000 shares at the end of September (check out Englander’s stock picks). Navellier & Associates, managed by Louis Navellier, owned 1.4 million shares and this was a slight increase from three months earlier (find Navellier’s favorite stocks).
Xcel Energy Inc recently reported its results for the fourth quarter of 2012 and consequently for the year as a whole. In Q4, revenue and earnings were about flat versus a year earlier as might be expected for an electric utility. Margins on the electric business were higher earlier in the year, as revenues decreased to a lesser degree than costs, and so 2012 was characterized by somewhat higher net income than 2011. However given last quarter’s results we’d conclude that gap has dissipated.
The stock pays a dividend yield close to 4%, based on recent dividend payments and the current stock price. Xcel does have a history of gradually increasing its dividend over the last ten years, and so we approve of the stock’s income prospects- as well as its defensive nature, given the beta of 0.2. Analyst estimates imply a forward P/E multiple of 14; that is not particularly interesting for a stable company from a value perspective but is low enough that income investors would be unlikely to see a sharp decline in the stock price.
We would compare Xcel to other utilities including Duke Energy Corp (NYSE:DUK), The Southern Company (NYSE:SO), American Electric Power Company, Inc. (NYSE:AEP), and CenterPoint Energy, Inc. (NYSE:CNP). As utilities these companies also have little exposure to the broader economy and therefore betas of less than 0.5. These peers also pay dividend yields of 4% or slightly higher, and so they might be even better choices for income or defensive investors than Xcel. Duke and Southern in particular are well capitalized with market caps close to $40 or $50 billion, and might be particularly good places to start looking for utility stocks. We would note, however, that in terms of earnings Xcel is generally priced at a small discount to these other companies.
There doesn’t seem to be a particular reason to imitate this insider purchase. In terms of value Xcel is not especially appealing, and while it is characterized by a high yield and a low beta the same is the case for other utilities, some of which edge the company on both grounds. While we would take note of the insider purchase the bullish case for Xcel seems to come from an income or defensive perspective and we think that some peers might be stronger options.
Disclosure: I own no shares of any stocks mentioned in this article.
