Lately, utilities proved more resilient than industrials, financials



In 2000, Berkshire Hathaway (BRK) entered into a new industry when it invested $1.7 billion to acquire MidAmerican Energy (MEC), an electric utility based in Iowa with operations in the United States and the United Kingdom. “Though there are many regulatory constraints in the utility industry, it’s possible that we will make additional commitments in the field. If we do, the amounts involved could be large,” said at the time BRK’s CEO and Omaha-based legendary investor Warren Buffett.

Mostly considered a low risk investment though capital-intensive, the utility sector encompasses stocks from electric, water, gas and power providers. Despite some continuous uncertainty over the cost of infrastructure and raw materials, utility stocks are widely seen as reliable as bonds but more rewarding since they pay a dividend yield of 3.5 percent, clearly above the yield of the S&P 500 at 2.11 percent and the U.S. 10-year Treasury note at 2.7 percent as of December 28, 2018.

Since the market’s recent entry into bear territory, consulting firm Cyceon noticed that the utility sector has shown more resilience so far than most other sectors including health care, financials and industrials.

Indeed, utility companies like Connecticut Water Service (CTWS), Atmos Energy (ATO), Northwest Natural Gas (NWN) are respectively down 4.05 percent, 7.46 percent and 12.86 percent from their historical highs*. In the meantime, industrial company ABM Industries Inc. (ABM), financial company Eaton Vance Corp. (EV) and health care distributor Cardinal Health (CAH) are respectively down 30.92 percent, 40.38 percent and 50.65 percent from their historical highs.

Multi-utilities companies however might be a bit more scattered than their specialized counterparts, for instance MDU Resources (MDU) is 34.20 percent away from its top, contrasting with Vectren Corp. (VVC) which is just 0.18% away. All the companies cited above belong either to the dividend aristocrats category or to the dividend champions category meaning that they are all longstanding companies with stable dividend distribution and growth policy.

* Most of historical highs here have been considered since 2007.

Will BMW and China bury Tesla and Elon Musk?



The German car group BMW has been producing and selling cars in China since 1994. Since then, China has become the second largest economy in the world just years away from dethroning the United States while in purchasing power parity (PPP) the Chinese gross GDP exceeds its US counterpart since 2014 according to IMF data.

According to Chinese state media, BMW is now considering selling Chinese production overseas, which was previously reserved for the Chinese domestic market. As part of a redefinition of the general rules of the Chinese government’s industrial and automotive policy, the BMW X3 electric vehicle would not only be produced in China but also exported to third markets, explained Thomas Becker, vice president of governmental affairs with BMW Group, to Chinese news agency Xinhua.

Customer demand for our X vehicles continues to be very highJuly sales of BMW X3 increased 52.3% – and now we’ve increased production capacity by localizing the BMW X3 in China and South Africa,” said Pieter Nota, Member of the Board of Management of BMW AG responsible for Sales and Brand BMW. If such evolution remains to be confirmed, BMW believes that the Chinese government is supporting it, this way addressing logically a message to its American competitor Tesla (TSLA).

The latter, whose stock price fell from USD 379 to USD 300 over August 7-20, 2018, seems in great difficulty following the complicated statements of its CEO Elon Musk. Burning a lot of cash and lacking capital to ensure production capacity in line with its objectives, Tesla could well see these very compromised if BMW produces in China electric vehicles for export worldwide. In addition to a presumably easier access to the resources needed to produce the batteries, BMW has an experience, a reputation and a production capacity incomparable to that of Tesla.

“If BMW and China get along, other automakers will take the same path and when it happens, the future of Tesla will darken more,” said an analyst of the automotive sector. As evidence, in the first five months of the year 2018, sales of BMW i, BMW iPerformance and MINI Electric vehicles jumped 41.0% to total 46,849.