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Aug
21
Jonathan Yates
Is DTE Energy a Way to Profit from the Woes of Detroit?
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From the economic woes of the City of Detroit, many securities have fallen in value.  That is particularly so for the municipal bonds backed by the general revenues of Detroit.  For investors, the recent decline in the price of DTE Energy (NYSE: DTE), a major utility based in Detroit with 2.1 million residential customers in Michigan, could be an opportunity to buy at a discount for long term gains.

Over the last month of trading, DTE Energy is down more than 4%.  Rising interest rates coupled with the falling fortunes of Detroit have resulted in much of the decline.  For 2012, DTE Energy is up more than 14%, however.

But there is much to like about DTE Energy for the long term.

Like many utilities, DTE Energy is a very stable stock.  The beta is only 0.51.  That means that DTE Energy is about half as volatile as the stock market as a whole.  This is appealing to investors as studies by Russell Investments have shown that low beta stocks turn in the best overall performance.

A major reason for this is that many low beta stocks pay high dividends.  That is certainly the case for DTE Energy.  At present, the average dividend yield for a member of the Standard & Poor’s Index 500 (NYSE: SPY) is around 2%.  The dividend yield for DTE Energy is 3.88%, almost twice as high.

Along with a high dividend, DTE Energy has a high profit margin.  Fot DTE Energy, the profit margin is 8.50%.  The profit margin for First Energy (NYSE: FE) is just 2%.   AES Corporation (NYSE: AES) has a negative profit margin of -6.50%.

Another factor pointing to the long term appeal of DTE Energy is the low short float.  A short float of 5% is considered to be troubling for a security.  Even with the poor outlook for Detroit, the short float for DTE Energy is just 1%.  By contrast, the short float for First Energy is 2.58%.   Dominion Resources (NYSE: D) has a short float about twice that for DTE Energy, too.

Many more professional investors are betting that Dominion Resources and First Energy will decrease in value, rather than DTE Energy.

Now trading around $67 share, the mean analyst target price for DTE Energy over the year of market action is $71.91.  The most recent rating for DTE Energy was a buy rating by Argus on July 29, 2013.



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