I am rotating some of my portfolio to the weakest sector – Utilities. One of my favourite picks is AES corporation. I own both AES and CEG in my Utilities portfolio.
AES has suffered a massive sell off and short bet as the DARK spread is contracting and it would hurt their profit margins. This is because Natural Gas price has been going down while Coal price has been going up. Since electricity price is linked to Natural Gas, the Dark Spread has decreased significantly.
However, AES has hedged itself from such contraction as it has many facilities in other parts of the world. Besides, AES corporation has more than 60% of its assets in Natural gas and renewable energy. AES fundamentals are sound and the company would most probably do well with the new equity that they have raised,
CIC bought 1.6bln worth of AES shares at $12.60 each. Currently, AES is trading at a steep discount of only $11.28. Last Monday, AES issued an investor’s presentation highlighting the fact that the stock is undervalued and that it should be trading at $13.13.
I am sticking to my original target of $12.5. The technicals of AES looks good. AES has support at $11.25 as seen by the double doji. Selling pressure has been exhausted, the stock should continue its rebound tomorrow.
2 comments:
Any comments on AA with earnings Monday night after the close and this dip on Friday
TIA
Nice couple of posts on AES. Funny thing about the CIC investment was that it was agreed last November when the stock was around $14... ok, the cash has only recently arrived due to regulatory issues, but still, what group of shareholders is happy to see 15% of their company "sold" at $12.60 when shares trade at $14? Let's suppose that everyone is now happy that the Chinese have paid a premium, but is anyone going to credit AES management with foresight, sound management, and a demonstration of good negotiation skills (seems like these abilities are fundamental to success - even in the international utility sector)? So, did last Monday's investors' presentation address the concerns of fund managers, and convince people to get back in? Volume is not heavy so all it takes are some disgruntled institutions and the current technical support won't mean much.
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