MDU Resources: The best utility of them all?
Today's Financial News - Posted April 14, 2009
I have always been a big fan of the safety and income potential of the nation’s utility industry. With the economy in shambles, few utilities have the potential they once did, but MDU Resources (NYE:MD) is looking as good as ever.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): No matter how well an executive team manages their company, there is very little any of us can do to mitigate political risk. No matter what we do, if a runaway government wants to take our profits, there is nothing we can do to stop it.
But the political teeter-totter goes both ways. The government giveth and the government taketh. If they want to hand us profits, there is little we can do to stop it.
One company hoping the Obama administration will do more good than harm is MDU Resources Group (NYSE:MDU), a diversified natural-resource company based in Bismarck, North Dakota.
There is a reason this company has consistently outshined its competitors and has been named one of America’s 400 best big companies by Forbes. It is superbly managed by a team of fiscal conservatives that concentrate more on long-term goals than short-term earnings estimates.
MDU was recently named the country’s best-managed utility company. And it shows.
With a current ratio of 1.3 and nearly $800 million in operating cash flow, the company has more than enough financial strength to get it through the current economic mess. But like so many things, what happens next is up to the nation’s Investor in Chief.
When Obama signed an economic stimulus package worth nearly a trillion dollars into law, MDU shareholders were drooling at the possibilities.
Three ways to win
With 10% of the company’s $5 billion or so in annual revenues coming from its construction materials subsidiaries (consisting of stone, asphalt and ready-mix concrete), MDU is poised to take direct advantage of the massive infrastructure spending allocated in the nation’s “recovery” plan.
Even better, as the nation works to rebuild its electricity transmission grid and its distribution pipelines, the money will flow directly to MDU and its utility resource offerings. Between utility construction and its electric and natural gas distribution services, the company generates about $1.75 billion in annual revenues.
As Obama’s stimulus money trickles through the economy, MDU is also quite likely to profit thanks to increased energy demand throughout the country. Over 50% of the company’s revenues are derived from natural gas and oil production.
As the nation’s economy grows, so will its demand for MDU’s energy.
But as I alluded to at the top of the article, Obama may have a devastating trick up his sleeve. His cap-and-trade idea could be debilitating for a fossil-fuel-based company like MDU.
With stakes in coal-burning power plants, plus a slew of oil and natural gas wells, MDU could suddenly find itself working in a vastly changed marketplace if Obama and his clan get their way. Fossil-fuel based energy would suddenly plummet in demand.
Fortunately, it does not look like it will happen anytime soon. Even a left-dominated Washington knows what economic destruction the new regulations would bring.
Even if Obama does not get his way in his current term, MDU shareholders must keep the notion of soaring pollution costs in mind. Until the idea is cleared from the table, investors will be skittish and share price will be discounted.
Even so, MDU is one of the strongest, least volatile utility companies out there. It will not make you rich overnight, but it will give your portfolio the kind of baseline security that will allow you to sleep well at night.
As I write, shares are trading for just under $17, not far above the company’s $14.95 book value. That means the risk in this financially sound company is low, but thanks to a trillion dollars in government spending, the potential reward over the next year or so quite high.
If all stocks were built on as solid as a foundation as this one, the country would not be in the mess it is. Take a look at MDU and see if it is a match for your portfolio requirements.
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May 6th, 2009 at 6:13 am
It’s President Obama!
The problem with being fiscal conservatives is that these nuts bankrupted our Treasury with their lies about tax cuts. There is no such thing as a tax cut. There is only debt created by unpaid taxes (debt).
Before the Reagan tax cut we had less than $1 trillion of debt. Today, over $11 trillion. If being fiscally conservative was good, we’d have surpluses, not debt.
So, let’s stop with the political attacks and lies needed to justify the failures of conservatism ok?
MDU’s stock has been gutted by the bad economy and IF the economy turns around its stock will go back to where it was before the collapse but not for a very long time.
MUD invested a lot of money in companies that have nothing to do with natural gas and even though we’ve had record heating costs, it still lost money during the last two quarters. If it can’t make money with record demand and record prices, when can it make money?
The problem is MDU has spent so much money buying construction related companies, so that when that industry collapsed, so did its stock value.
Now MDU depends on another government bailout.
With investors losing so much money because of bad decision made by MDU’s board, one has to wonder what this author was thinking when he wrote this piece of tripe.
Had its stock gone up…now that would be something to crow about.
Instead, the author crows about the failure of MDU to preform for its investors.
I want profits, not political tripe.