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Friday, 08/13/2004

By Nich Sheldon
SRE - Sempra Energy

Company Description

Sempra Energy (NYSE:SRE - News), based in San Diego, is a Fortune 500 energy services holding company with 2003 revenues of $7.9 billion. The Sempra Energy companies' nearly 13,000 employees serve more than 10 million customers in the United States, Europe, Canada, Mexico, South America and Asia.

[Source: Company Press Release]

Reasons to Invest:

Wow! What a tough month August has been so far. Did you know that August is historically the worst trading month for DOW Industrials and the second worst trading month for the NASDAQ. Besides historical data, I continually find it difficult to digest how many bearish catalysts are present in the market.

It's time to face the facts... investors are worried about terrorist threats at the Olympics in Athens, as well as the Republican National Convention in New York. Furthermore, the Trade Balance jumped up by a margin of 8.9 billion for the month of June, which is the largest gap seen since February 1999. In my opinion, I don't see any events on the horizon that are going to provide any sort of significant impact on reaccelerating Wall Street. Greenspan says that he feels we are on the midst of recovery and that all of this data is just a soft patch. What do you think?

Will the market recover? Of course it will. When? At this point I think even Nostradamus would have a hard time predicting when the market will turn around. My best guess is after Labor Day. After all, August will be behind us, the summer will be over, and generally speaking traders are going to place their bets once the summer doldrums pass. Another thing to keep in mind is that stocks have gone from overextended, to extended, to flat or down in the past few months. While this is a sign that Bears are definitely not in hibernation, the length of the downtrend, coupled with the volatility indexes (VIX.X, VXO.X, VXN.X) near their highs, is generally a sign that the market is near its bottom. Once we find out what levels are going to hold up as support, we will be able to purchase a lot of stocks that are way undervalued, which will entice many new positions from both long and short-term traders. Let's cross our fingers and pray for a rebound, come September.

Okay, enough with the tangents. It's time to spotlight one stock that is trending higher as opposed to lower like the major indices. In order to find a quality DRIP in this type of market you really need to find a sector that is outperforming the current downtrend. I spent the better part of a day researching candidates that were worthy of Drip Advisor's limelight only to be overwhelmed by how horrific stocks have been performing.

Nonetheless, Sempre Energy (NYSE:SRE) is this week's DOTW. I like SRE for several reasons. For starters, the stock trades on high volume, offers a hefty dividend, is reasonably priced, and has been in an upward regression channel since October of 2002. I also like SRE because it has strong relative strength in comparison to the Utility Index (UTY.X), which has also been edging higher.

For the second quarter, Sempre's revenues increased 16%, and net income boomed higher by 50%. The company also reaffirmed their Q4 guidance, which bodes well for new positions, and usually gives shorter-term traders more confidence in future investments.

Today, the company added their 1,500th local customer providing energy from wind and solar power to the region's energy grid. From what I can understand, SDG&E (a subsidiary of SRE) has a net-metering program that allows customers to install small renewable energy systems like solar arrays and wind turbines to their house. The customers that decide to do this qualify for special meters that run backwards when the renewable system is sending energy into SDG&E's electrical grid. This grid then basically stores the energy that customers are receiving, and uses it when power outages occur. On that note, just imagine how beneficial than can be to SRE's stock. Basically they're getting their customers to provide their grids with free energy, which they then sell to other members in their system. This has to boost profits, and I speculate that this could really help them stay in-line, or provide an upside-surprise on their fiscal estimates. Remember, we want to find DRIPs that are going to continually beat analysts expectations, and SRE is shaping up to stay energized, throughout next year.

From a technical standpoint, SRE looks pretty solid. The stock currently has a Point-and-Figure Bullish Price Objective of 42.50, which I feel is quite achievable, and actually will be bumped higher in the next year.

Since October 2002, the chart has been trending higher inside of a regression channel that has proved to be support/resistance for the stock for that entire period. Unlike most of the charts that you will find right now, SRE is using its simple moving averages as support for higher ground, and has only fallen below its 200 DMA for a week-long period back in November 2003.

The MACD indicator on the Weekly chart is giving off a buy signal. Needless to say, I note the 10-DMA over the 20-DMA, which is generally a good sign of a continuation of the bullish trend. Additionally, on August 4th, SRE closed at its all time high of 36.46. Since SRE just pegged this new high, chances are good that the level will be broken again. The fact that there is no overhead resistance to "de-energize" shares, also bodes well for us DRIP investors.

In respects to dividends, SRE divvies out $1.00/share owned/year, which tabulates out to a 2.81% annual dividend yield. The last dividend was paid in July, so it looks like we are going to have wait until September before our dividends can be reinvested. However, this gives us roughly two months to get enrolled and take ownership!

This ends another exciting episode of the Drip of the Week. Stay tuned next week, as we will spotlight another stock worthy of the limelight.

Until Next Week,
Nich Sheldon

Broker Recommendations

Strong Buy         4
Buy                3
Hold               5
Sell               0
Strong Sell        0

Brokers Covering  12

DRIP Information:
Shares to Qualify = 1
Auto-reinvestment = Yes
Accept Foreign Accounts: Yes
Temper Enrollment: Yes

Min/Max Investment = $25-$150,000/year

Reinvestment Fees - 
Dividend investment fees: $0.00
Cash investment fees: $0.00
Auto reinvestment fees: $0.50

Transfer Agent:
First Chicago Trust

Corporate Headquarters:
101 Ash Street
San Diego, CA 92101
Phone: (619) 696-2034
Fax: (619) 696-2374


Copyright 2003

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