MGE Energy, Inc. (MGEE), PNM Resources Inc (PNM), Avista Corp (AVA) – Small-Cap Utilities: Rockets or Bombs?

Diversification can be done well or poorly

Avista Corp (NYSE:AVA) is a company that has a strong cash flowing business with 359,000 power and 320,000 natural gas customers across the western US. That’s a solid backing for more speculative work such as Ecova, which is leading the charge to make sites more environmentally friendly and sustainable. With 600,000 sites and more than 700 customers to its credit as of this writing, Ecova is the great potential Avista Corp (NYSE:AVA) has for dramatic growth. While utilities aren’t usually known for being growth monsters, consultancies dealing in a major field have extraordinary potential to expand.

This potential for growth is particularly the case as environmental regulations become more stringent. With tighter laws and more requirements for companies to follow, Avista Corp (NYSE:AVA)’s Ecova subsidiary may eventually be spun off as a sizable business in its own right. If this happens, expect existing Ecova shareholders to receive shares that could grow handily. This may never happen, but Avista Corp (NYSE:AVA) has a solid backing with its utility business — having operated since 1889, it probably isn’t going to stop any time soon.

Putting It Together

There are a lot of things that can power growth. A company can take a calculated risk on something unproven. Another company may simply be unpopular or have gone unnoticed by the market at large. Even a simple company that’s churning out cash can be a rocket. Just look for a great company and wait until it feels like a good deal and you’ve got a solid chance.

The article Small-Cap Utilities: Rockets or Bombs? originally appeared on Fool.com and is written by Chris Hodge.

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