3 Small Cap Utilities “Burning Up” the Market

Jacob Harper  |

December means a lot of things: Christmas; the end of the year; the release of whatever Oscar bait Tom Hanks is in that year. But for much of the US it also signals the beginning of the winter, and the expensive heating bills that come with it. Nothing merry about that!

Well, unless you’re a company on the receiving end of those bills, or a retail player invested in one of those companies. In that case, the winter means a time of increased revenue and increased profits. Happy holidays indeed!

To find what plays would most be of interest to retail investors looking for a utility play on the cusp of the yearly heating surge, we laid out some criteria to narrow the field. Specifically, we looked for companies that:

1)      Has an Analyst Consensus of “Buy” or Better

While you can’t trust the experts one hundred percent of the time, first thing we did was eliminate companies that did not have at least a “buy” rating. Because when a company does not have at least that rating, you’ve probably got a stinker on your hands. After all,  x percent of companies have at least a buy, so it’s good to start there.

2)      Must be a Gas Company

We focused on gas utilities as opposed to electric or water, as gas companies are most affected by the wintry raise in heating costs.

3)      Must Pay a Dividend of Three Percent or Over

Dividend stocks can be an attractive option for retail investors, as dividends provide a kind of psychological incentive to save and diversify investment. Unlike tech and healthcare, utilities as a sector are not dependent on innovation, and are thus not greatly hampered by offering dividends.

4)      Must be a Small Cap

We decided to limit our search to companies that are worth between $300 million and $2 billion, as small caps provide a nice balance of both the stability of larger plays with the chance for rapid, exponential growth that of a smaller company.

After utilizing this criterion, we identified three small-cap gas companies that fit the bill:

This gas gathering and compression services play operates throughout the Western US, serving producers in Colorado, Texas, the Bakken Shale and Virginia.  The company is headquartered in Dallas, TX.

Market-Cap: $847.79 Million

Price: $33.68

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P/E: 38.71

Performance YTD: +80.49 percent

Based in St. Louis, Mo., this gas holding company is the largest distributor in the great state of Missouri. Laclede is the eight oldest company that currently trades on the New York Stock Exchange, having first listed in 1889.

Market-Cap: $1.49 billion

Price: $45.59

P/E: 18.76

Performance YTD: +21.57 percent

As their name implies, South Jersey Industries is located in Florida. Kidding. Headquartered in Folsom, New Jersey, this holding company headquartered has been in operation since 1910.

Market-Cap: $1.79 billion

Price: $56.12

P/E: 25.98

Performance YTD: +14.16 percent

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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