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Inside Wall Street


Sempra's Positive Charge

Editor's Note: An earlier version of this story misstated the amounts of Sempra Energy's capital expenditures allocated for utilities.

While most utility stocks have floundered this year, with the Dow Jones Utility Average down 3.4% since Jan. 1, Sempra Energy (SRE) has electrified investors with a hefty 13.5% gain. "Sempra is impressively running on all cylinders, with its diversified operations doing great," says Lasan Johong, utilities analyst at RBC Capital Markets.

Sempra is his top pick in energy, rated overweight. (RBC has done business with Sempra.) The stock, which hit a 52-week low of 36 on Mar. 9, has leapt to 48. Sempra's regulated Southern California Gas and San Diego Gas & Electric provide electricity and natural gas in Southern California. Among its other more exciting units, though still not as profitable as the utilities, are liquefied natural gas (LNG) terminals in North America, energy and metals trading, and gas pipelines and storage facilities in the U.S. and Mexico. Sempra will now spend $12 billion on capital investments in the next five years, 75% of which will go to its utilities vs. 60% of the $10 billion spent in the past five years.

One project is a $1.9 billion transmission line. Regulators allow Sempra's utilities to achieve returns on equity of as much as 11%, Snell says.

Christopher Muir of Standard & Poor's (MHP) has raised his 2009 earnings forecast to $4.60 a share and his 2010 to $5.03. He rates Sempra a strong buy, with a 12-month target of 61.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

A Makeover at NeoStem

Big plans by tiny NeoStem (NBS), which collects and stores adult stem cells for future medical use, have helped catapult its stock to 2.27 a share from 50 cents on Mar. 9. NeoStem applied for patent protection in May for a technology that allows use of an adult's stem cells in cosmetic surgery. And it took a 51% stake in a profitable Chinese drug company with $60 million in sales to distribute stem cell therapies in China. In April it raised $11 million in China to improve its balance sheet. It also signed a 10-year pact on June 15 with China's Enhanced Biomed Holdings to build stem cell treatment clinics in China. Rachel Kirsch of Pro-Active Research Group (it did business with NeoStem) rates the stock a speculative buy, seeing it at 5 in a year. Gary Goldstein, president of Mithra Research, says China operations should yield revenues of $50 million a year. His 12-month target: 7.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Hecla: Gold in This Silver Mine?

The economy has yet to mount a full-bore recovery, but many investors already worry about inflation. They are buying inflation-fighting stocks that leap as commodity prices soar. One such stock is Hecla Mining (HL), the largest U.S. silver producer. "For investors looking for a leveraged exposure to rising precious metal prices, Hecla is the answer," says Jared Levin of investment firm A.R. Schmeidler, which owns shares. Hecla fell to 2.30 on June 17, from a 52-week high of 9 a year ago, because of problems in financing its 2008 buyout of Greens Creek Mine, the world's fifth-largest, which more than doubled reserves to 132 million ounces. Hecla raised $60 million in June by selling shares to solve the crisis. Its financials have improved, says Levin, who sees it at 7 in a year. Steven Butler of Canaccord Capital, which has done business with Hecla, rates it a buy partly based on its low price.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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