Finding a Spark in Utilities

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Presenter

Heartland Advisors Value Investing Research Analyst Eric Miller

Eric Miller

Miller is Vice President and Portfolio Manager of the Heartland Value Fund and its corresponding separately managed account strategy. He has 24 years of industry experience, 15 at Heartland.

Transcript

We take a very bottoms-up, fundamental approach to stock selection.

And from that standpoint, we do pay attention to sectors, but sectors do not drive our investment process.

Now, this somewhat contrarian nature of what we do is probably exemplified by the fact that we actually have a reasonable representation in the Utility sector.

And, if you looked at the beginning of the year, what prognosticators were saying about what sectors to be in, the place he would have found Utilities would've been way at the bottom.

But, from our standpoint, what we saw was we found some companies that really had some compelling characteristics.

What’s really excited us about the sector is we actually have, in each name, what we think are really interesting catalysts:

  1. Our names, they tend to have much greater growth opportunities. They tend to have been restructuring themselves via selling off assets, closing facilities, paying down debt, generating significant free cash flow—and that creates some very interesting opportunities for us.
     
  2. The other aspect that we see in our names is we actually see insider buying. The Utility sector is not known for insiders stepping up and buying stocks; we’re seeing that in our names.
     
  3. Lastly, we have a significant overweighting in Texas, and Texas is a great Utility market. If you look at the Texas market, electric usage in that state has grown in 2017 at more than five times the national average. That's a very, very powerful reason to look at Utilities in that state compared to opportunities in other states where the growth is minimal. So, we’re very excited to be involved in the Lone Star State.

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