This stock's safety, dividend and growth are hard to beat

U.S. electric power demand may be sluggish, due to the recession, but investors should view that as a temporary phenomenon. True, increased energy efficiency across the U.S. economy will be a trend for the next decade and beyond, but relatively low-cost electric power does not go out of style, which is why I'm reiterating my buy rating for American Electric Power (AEP), first recommended on May 4, 2009 at a price of $25.38.

If you bought AEP in May, you're up about 25%. AEP's above-average total return on equity story remains intact. Look for an increase in retail electric demand in fiscal 2010 and that fact, combined with a decline in operating/maintenance costs, and little impact from greenhouse gas legislation until about 2018 or 2020, translates into a bargain stock at a P/E of 12.

A $1.64 annual dividend adds to the positive story. The First Call FY2009/FY2010 EPS estimates for AEP are $2.94 to $3.07.

Technically, American Electric stock chart has encountered 52-week resistance at/near $33. AEP may also correct heading into December on year-end profit-taking by short-term players. Otherwise, AEP's chart looks good.

Stock Analysis: American Electric Power is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in AEP now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your AEP position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $12.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Read Full Story

Markets

DJIA 24,834.41 -178.88 -0.72%
NASDAQ 7,378.46 -15.58 -0.21%
NIKKEI 225 22,689.74 -270.60 -1.18%
HANG SENG 30,665.64 -568.71 -1.82%
DAX 12,980.40 -189.52 -1.44%
USD (per EUR) 1.17 -0.01 -0.71%
USD (per CHF) 0.99 0.00 -0.18%
JPY (per USD) 109.71 -1.02 -0.92%
GBP (per USD) 1.33 -0.01 -0.90%