Today we have a very speculative idea: take shares of the American housing and communal services company NiSource (NYSE: NI), in order to capitalize on the influx of conservative investors into these shares.
Growth potential and validity: 10,5% behind 14 months excluding dividends; 9% per year, including dividends for 10 years.
Why stocks can go up: because they are very attractive to conservative investors.
How do we act: we take shares now by 29,21 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
NI is a utility business, supplying gas and electricity. The company's annual report is very detailed. By type of customer, revenue is divided as follows::
- Residential buildings - 55,59%.
- Commercial sector - 24,58%.
- Industry - 13,34%.
- Gas supplies via pipeline — 0,87%.
- Others — 1,14%.
- Participation of the company in energy efficiency improvement programs — 5,62%.
The sale of gas gives the company 64,97% proceeds, segment operating margin — 19,39% from its proceeds, sale of electricity — 35,03%, segment operating margin — 22,85% from its proceeds.
The company operates only in the USA.
Arguments in favor of the company
stable. As befits a utility company, NI has a very stable business. Diversification also helps stability: the presence of a significant share of electricity in the company's revenue allows it to slightly compensate for the summer drop in gas consumption, which is mainly used for heating. In general, the stability of the company's business will attract investors to its shares.
Passive income. NiSource pays 0,94 $ dividend per share per year, which gives approximately 2,92% per annum. It's not giant money., but still tangible returns will enhance the attractiveness of these shares for conservative investors.
ESG. The company has invested several billion dollars in the construction of projects in the field of solar and renewable energy - most of them will be operational by the end of 2023. This could bring NiSource to the attention of the ESG lobby., which will pump up quotes to her, and getting loans will make it easier.
Can buy. Buffett's Berkshire Hathaway recently announced it was buying reinsurer Alleghany for $11.6 billion.. This business is so dull and simple, just as inexpensive and understandable for Buffett. Just like NI. Considering, that Berkshire still has a lot of free money left, Buffett may well spend money on buying NI. Well, or it will be another buyer, who will be attracted by the above-described advantages of the company.
What can get in the way
Accounting. The company has 7.7 billion dollars of debt, of which 2.746 billion must be repaid within a year. She has little money: there are 84.2 million in accounts and another 825.6 million debts of counterparties. At the same time, it has multibillion-dollar investment needs to upgrade its infrastructure.. So it can cut the dividend., what will cause stocks to fall.
The company finances its investment program not only through debt, but also through the issuance of new shares. This is bad, because such an approach dilutes the value of existing shares and can lead to their fall, if there is no demand for new shares.
Off season, and generally boring. Supernatural results from the company in the next six months should not be expected: gas consumption will fall in summer. The main calculation here is precisely on the influx of conservative investors into the shares, who are frightened by what is happening in the world and who want to, to make money work.
Maybe, next year the US will be hit by one of the legendary terrible American winters and gas consumption in this country will grow strongly along with NI revenues. But it's incredible: the company's business is how stable is, just as sad.
What's the bottom line?
We take shares now by 29,21 $. And then there are two ways:
- wait, when will the shares be worth 35,5 $. Think, We will achieve this goal in the next 14 Months;
- hold shares 10 years.
Well, given the importance of the dividend factor, look at the news section on the company's website. Suddenly, news about the reduction in payments will appear before the opening of the market in the United States and we will be able to dump shares on the St. Petersburg Exchange before, How will investors react to this sad news?.
