PG&E Blackouts: An Investing Red Herring

"How are you enjoying the show?" I asked one of our subscribers last week at our Stansberry Conference in Las Vegas.

"The show's great," he said. "But I've been better. They just shut the power off at my house."

Fortunately, he elaborated before I had a chance to put my foot in my mouth.

"I live in Napa Valley. They've shut the power down to avoid wildfires. They've put off improving infrastructure for decades and now this is the solution."

Crazy is an understatement. We now have widespread blackouts in California. And not just that – in some of the wealthiest spots in California.

I'm talking about places like Napa County and the Bay Area. That's the region from San Francisco to San Jose. It's the home of tech giants like Facebook and Google (though the big tech companies made it through without any shutdowns... go figure).

The blackouts hit what California-based utility PG&E describes as 700,000 "customers." That is, they affected 700,000 households and businesses... or about 2 million people, in human terms.

We'll let the pundits waste their time trying to make sense of the fundamentals. We're focused on investing.

And I'm betting, as an investor, you don't think much about utilities. If you have thought about them at all in the last year or so, it's because of PG&E and its ongoing lawsuits from California's devastating wildfires.

Hopefully, the latest PG&E madness didn't distract you. Hopefully, you noticed the incredible setup in the utilities sector... and didn't fall victim to this newsy investment "red herring"...

These kinds of investment red herrings crop up all the time. They're newsworthy... But that's it.

Worse, they waste your time. And that prevents you from seeing real investment opportunities.

That's exactly where we are now. The PG&E blackout story is taking up all the air in the room. And it's preventing investors, who normally don't think about utilities at all, from seeing the real opportunity in the sector.

Normally, I'm not interested in utility stocks... especially now, in the late innings of the Melt Up.

It's a boring sector, filled with businesses that keep the lights on in your home. They're highly regulated. And in California, you better believe regulators are looking closely now.

Under regular circumstances, these companies are slow movers. But that's not always the case. When the right circumstances line up, utility stocks can perform incredibly well. And those pieces are falling into place right now.

Thanks to a massive fall in interest rates, we have a rare chance to make huge triple-digit gains in a normally boring sector.

Bond yields have crashed. They're now near all-time lows. And that creates a huge opportunity in dividend-paying stocks... like utilities.

The reason is simple. While interest rates have fallen, utility yields haven't fallen nearly as much. Today, the sector yields roughly 3%. That's almost one-and-a-half percentage points higher than the 10-year Treasury yield of 1.7%.

This hasn't been the case historically. More than four decades of data shows that, on average, utilities yield half a percentage point less the 10-year Treasury yield.

Consider this... For utility yields to fall below Treasury yields again, like normal, the sector would have to soar nearly 100%.

Let's say a stock trades for $5 and pays a $0.15 annual dividend. That's a 3% dividend yield. If the stock doubles to $10, that $0.15 dividend is now a 1.5% dividend yield.

Now, I'm not predicting a triple-digit move in the underlying sector right now. That would be an amazing feat for boring utility stocks. But thanks to incredibly low interest rates, a major move higher is possible.

It's an exciting setup... in a sector that's usually slow and uninteresting.

The only news in the sector has been about PG&E. But don't let the red herring distract you... There's big opportunity in the utilities sector right now.

Good investing,

Brett Eversole

Further Reading

"We just heard the starting gun for the 'Golden Age of Value,'" Mike Barrett says. Right now, one class of normally slow-moving stocks is setting up for big gains ahead... Get the details right here.

"This is a crazy situation – one that shouldn't happen," Steve writes. "But here we are." A recent unusual market event points to more gains ahead in stocks. Read more here: This Rare Anomaly Is a Screaming Buy for Stocks.

Market Notes
HIGHS AND LOWS

NEW HIGHS OF NOTE LAST WEEK

Apple (AAPL)… tech giant
Taiwan Semiconductor Manufacturing (TSM)… chipmaker
RingCentral (RNG)… cloud-based communications
Charter Communications (CHTR)… cable TV
D.R. Horton (DHI)… homebuilder
KB Home (KBH)… homebuilder
Sherwin-Williams (SHW)… paints and sealants
American Woodmark (AMWD)… cabinets
Aramark (ARMK)… food and uniforms
HCP (HCP)… health care REIT
Healthcare Realty Trust (HR)… health care REIT
Digital Realty (DLR)… data-center REIT
Realty Income (O)… retail REIT
Target (TGT)… discount retailer
Fidelity National Financial (FNF)… insurance
Algonquin Power & Utilities (AQN)… utilities
Aqua America (WTR)… utilities
Frontline (FRO)… oil tanker shipping
Scorpio Tankers (STNG)… oil tanker shipping

NEW LOWS OF NOTE LAST WEEK

BioTelemetry (BEAT)… medical technology
BlackBerry (BB)… software
Viacom (VIAB)… media
CBS (CBS)… media
Schlumberger (SLB)… oil and gas
EOG Resources (EOG)… oil and gas
Carnival (CCL)… cruises