Rocky VIII: The Rebounding Utility Creed

Who would win? Rocky Balboa or an American Regulated Utility Company?

"It's not about how hard you can hit. It's about how hard you can get hit and keep moving forward." - Rocky Balboa 

When it comes to investing, few sectors demonstrate the power of resilience quite like utilities.

In an industry where companies are entrusted with providing essential services like electricity and natural gas, even the gravest crises have not meant the end. 

Instead, these companies have a remarkable track record of rebounding from disasters and delivering substantial returns for investors who stay the course.

From nuclear accidents to wildfires and financial meltdowns, the journey of utilities is one of recovery and growth. 

Here's why this sector offers compelling opportunities for those willing to take a long-term view.

Utilities and Rocky-like Resilience

Imagine the scenario: a utility company hits rock bottom, its share price in tatters after a crisis, and its future seems bleak. For many investors, this would be a signal to sell and cut losses. But history has shown us time and again that this sector has a unique capacity to bounce back stronger than ever. 

Why? 

Because utilities operate regulated monopoly franchises that provide critical, everyday services. Even when their expenses spiral due to disasters or mismanagement, their revenues from these essential services remain steady. The primary task becomes managing costs and securing regulatory approval to regain financial stability. 

This core dynamic—an unyielding demand paired with the assurance of regulatory support—sets the stage for remarkable recoveries.

You may have heard of the beloved Rocky series. You may know that when his opponents had him on the ropes, Rocky could take hard hits and persist. Even when he was beaten and bloodied, he would still get up and recover. 

But how many times have you heard this has happened to utility companies in the United States? Ever?

And yet, it's a common occurrence, and the stakes are much higher for these combatants than they were for Rocky.

Their failure means a loss of the core features of civilization itself: clean water, safe light sources at night, life-saving heating and air conditioning, and advanced hospital systems. Not to mention food refrigeration, transportation, and your ability to stream Netflix. 

Things go wrong in the boxing ring. But they go catastrophic on the grid. 

Consider PG&E Corp: After devastating wildfire liabilities pushed it into bankruptcy and devastated its share price, the company is now steadily climbing back. With strategic investments in undergrounding power lines and other grid-hardening measures, PG&E is drastically reducing wildfire risk. Regulatory and political support remains crucial, but if the company avoids further liabilities and secures an investment-grade rating, its recovery could be one of the most significant in recent memory.

But perhaps the most challenging recovery story is that of Hawaiian Electric, which has been hit with massive liabilities following the devastating Maui wildfire. While the company is under significant financial pressure, it also holds valuable assets like American Savings Bank that could help fund its recovery. Coupled with state support aimed at securing a stable energy future for Hawaii, Hawaiian Electric has the potential to turn its current crisis into a long-term opportunity.

 The Unique Investment Case for Utilities

What makes utilities different from other sectors is their built-in resilience. While high-growth sectors like technology can see companies vanish overnight, the utility sector's regulated nature provides a safety net.

Regulators, state governments, and other stakeholders understand that allowing a utility to fail is rarely an option, given the essential services they provide. As a result, even in the face of disasters, utilities almost always find a way to stabilize, recover, and thrive again.

Utilities have proven time and again that they can turn the worst crises into opportunities for reinvention and growth. For investors, the lesson is clear: patience and a long-term perspective in the utility sector can yield incredible returns. 

The companies facing adversity today could very well be the big winners of tomorrow, thanks to the sector’s fundamental resilience and the indispensable nature of their services. 

By understanding these dynamics and choosing the right moment to invest in these companies on the road to recovery, investors can tap into the extraordinary power of utility turnarounds.

I cover exactly how to do that, step by step, in the newest issue of Conrad's Utility Investor. I also share more than 6 other stories showcasing utility comebacks.

If you haven't already subscribed to Conrad's Utility Investor, comment "Rocky" below and I'll send you a discount code you can use at checkout. 

To your wealth,

Roger S. Conrad