Consolidated Edison

4/8/12

            For those who don’t have access to the futures market like I do, hold onto your hats because Monday is going to be an ugly bludgeoning stemming from Friday’s horrendous jobs report.  Economists were expecting an increase of 220,000 jobs, while the report showed a measly increase of 120,000.  Look for more profit taking from some of the top performers so far this year, (i.e. AAPL, TJX, CMG, etc…).  That being said, you should continue to own the TLT, as interest rates plummeted on the jobs number.  With CPI and PPI, and the beginning of earnings season this week, I continue to see investors piling back into Treasuries looking for safety.  All that being said, continue to focus your attention on stocks that pay big dividends.  This week I am recommending a stock that pays a hefty 4.20% dividend and one that I have made a lot of money on in the past, Consolidated Edison (ED). 

ConEd provides energy services to residential, commercial, industrial and government customers in the US.  They provide electric services to almost 3.5M customers in New York City and gas to approximately, 1.1M customers in Manhattan, Bronx, Queens and Westchester.  They operate about 4,500 miles of mainline gas and 588,000 miles of service lines for natural gas.  ED is trading at just 15 times forward earnings, but cheaper than it’s historical P/E of 16.5.  The company recently increased their profits margins and operating margins to 8.12% and 17.31% respectively.  Now, it’s important to note that this stock does have a very high PEG ratio of 4.88 which explains why so many analysts are bearish on this stock with 0 buys, 13 holds and 7 underperforms, and an average price target of $58, which is about where the stock closed on Thursday.  While I agree that its run up a lot, I think the analysts have this one wrong, and are giving you a great opportunity to buy in with the dividend still above 4%.  I believe in the old adage that if nobody else in the world wants it, I DO.  Look at the TLT for case in point.  While the Fed has hinted that QE3 is off the board, interest rates will continue to remain low for the foreseeable future, which is bullish for utilities.

Looking at the technicals for ED, there isn’t much to write about.  It’s currently sitting right at the 50 day MA of $58.18, which is above the 61.8% Fibonacci retracement of $57.56.  That’s the price I would look to be a buyer at, and one in which you should easily see on Monday.   Looking at a weekly chart, the long-term uptrend line comes into play at $53.50, which is where you should stop yourself out on the down side.  There are some negatives on the chart…looking at a monthly chart; you’ll see an outside reversal bearish engulfing line (the monthly bar engulfs the entire body of the previous month when looking at a candle chart) that has yet to be challenged.  However, over the last 3 months, ED has been forming a rounded bottom, which usually signifies the low for the move.  I think that’s exactly what you’re getting here with this stock.

As for entry and exit points, I would wait until you see the stock trade down to $57.56 or lower, depending on how bad Monday turns out to be.  If ED trades higher, wait for the pullback.  As for exit points, Consolidated Edison has been a very consistent performer and it’s not a stock that’s going to move big one way or the other in dramatic fashion.  Additionally, I want you in this stock to hold onto for that nice dividend yield, but if you want to be safe, stop yourself out at $53.50, a price we haven’t seen since August of last year.  On the upside, I see ED trading to $62, but could take a while to get to.  Consolidated Edison is a great low risk play in a market that has already rallied sharply and is due for a pullback.

Full disclosure: I currently hold no positions in ED. 

Jeff Lewison