NorthWestern Corp (NWE), NextEra Energy, Inc. (NEE): Can Utilities Make You Rich?

Dominion Resources, Inc. (NYSE:D) has a high P/E ratio of 112.47, drastically increasing from a P/E ratio of 25 in early 2013. Dominion Resources, Inc. (NYSE:D)’s investors actually have ambitious expectations about the future growth of the company due to some projects under development such as Blue Racer Midstream and Cove Point LNG. On the flipside, the stock could hit a brick wall if future earnings are not up to expectations.

Expectations for future

NorthWestern Corp (NYSE:NWE) is expected to stick with coal-fired power plants for the short-term. However, the increasingly apparent feasibility of wind farms in Montana is expected to force the company to supply more of its power from wind power. With wind farms making more economic sense, I believe that the company’s energy mix will soon tip towards wind power.

For NextEra Energy’s management, there are limited opportunities in the future profitability path of this company. The expected CapEx for both future wind and solar projects is above $3 billion for each through 2014. The company would not be doing this if it sees any huge risks to the company’s profitability from these projects. Nevertheless, NextEra Energy is well hedged through 2014.

Due to the expense of its CapEx, Dominion should increase its long-term debt because even if the company renews with over a billion earnings per year, it will not be possible to fund a quarter of the upcoming CapEx without loaned money. On the flipside, Dominion is well positioned to profit from its LNG business over the long term with assets consolidated in Marcellus and Utica shale gas plays. Moreover, its Blue Racer Midstream and Cove Point LNG export project largely will fuel company’s future growth.

Final verdict

In this selection, NorthWestern Corp (NYSE:NWE) is the best bet. The company’s net income growth has superseded its competitors’ over the last three years, while the declining revenue seems to be an industrial phenomenon. Despite having a market cap of $1.6 billion, NorthWestern has not only been able to keep up with its much larger competitors but is fighting above its weight class because of the 3.59% yield. The stock has been rallying strong, especially in 2013. Keeping in mind the company’s proven potential and plans for the future, the undervalued NorthWestern stock looks to be a great opportunity.

The article Can Utilities Make You Rich? originally appeared on Fool.com and is written by Marina Avilkina.

Marina Avilkina has no position in any stocks mentioned. The Motley Fool recommends Dominion Resources. Marina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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