New Opportunity Emerges After Trump Trade Cools

Let me explain…

Sentiment-driven stock rallies are often led by the market’s smallest, most volatile stocks: energy, materials and tech names.

And while investors flock to these risk-on trades, they tend to shed “defensive” stocks. That is, low-growth stocks with consistent cash flows and dividends. Think consumer staples, telecoms and utilities.

But the opposite is also true.

As investors de-risk, they load up on “safe” defensive stocks.

And thanks to the broad sell-off in stocks, the smallest issues — which fell the furthest — are now among the market’s cheapest names.

Here’s one such name perfectly positioned to profit from the safety trade…

The Spark That Grew Into a Mighty Blaze

Spark Energy Inc. (SPKE) is an electric utility company based in Houston, Texas.

The company offers its natural gas and electricity services as an alternative choice in 90 territories across 18 states.

Boasting a market cap of just $630 million, Spark has plenty of room to grow in this new, fragmented market.

Since going public in 2014, the company has grown earnings per share by 33% — besting the electric utility industry by four times.

In just the fourth quarter, earnings rose 93% from the previous year.

Fourth-quarter sales also grew 52% from the same period last year, to $547 million.

Spark trades at 16.3 times forward earnings — a 15% discount to the Russell 2000 and 26% below the industry.

The company also sports a forward enterprise value-to-sales multiple of 1.0 — a 78% discount to the industry.

Free cash flow (FCF) — a key balance sheet item watched by income investors — rose 48% from last year, to $66 million. And the company’s dividend payments account for just 36% of FCF. As you may know, payout ratios from FCF below 50% indicate a rock-solid dividend.

Speaking of dividends, shares also yield 4%. That’s a 65% premium to the S&P 500 and nearly twice what the U.S. 10-year Treasury now pays investors.

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Disclosure: None.


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