Value Investing with Sven Carlin, Ph.D. on $PNW (Nov 3, 2026)
PNW is an interesting utility with a 3.49% yield, P/E 20, and 5-6% annual growth expected through 2030 from Arizona and data-center expansion, but it is overpriced and that growth is already priced in; now is not the right time to invest because investors pay full price for something still to happen. Better to buy at the cycle low, e.g. a recession when PNW could fall 40% and yield 5-6%, in line with 10-year Treasuries.
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Let's start immediately with Pinnacle West Capital, an Arizona-based utilities company, and explain what it means to invest in utilities, when is the best time to do so, and how it can fit into your investment portfolio.
We have a good dividend yield of 3.49%, a price-to-earnings ratio of 20, and a stock that is growing based on Arizona growth prospects and investments and expansions in data centers.
Since it is a utility company, investing in it also means protection against inflation; It can raise prices in line with inflation, as the local government allows it to achieve higher returns on invested capital in line with its costs.
The company is expected to grow 5 to 6 % annually until 2030. If they achieve that, and perhaps see some improvement in prices because data centers pay more for electricity , then those are good positives.
Of course, this also requires investment. Investing $10 billion over four years is not a small amount, especially with the current level of debt, but this is typical in utilities where you have to build first to sell the service or use it later.
If everything is managed well, it will lead to continued growth in dividend payouts, which is good for yield investors. However, when looking at things, one should always check our current position in terms of price compared to the investment.
There are always shocks to these facilities, such as the Enron shock and the wholesale problems in 2002. The stock fell by 40% within a few months.
Also, recessions, such as those of 2007-2009, are always something that can affect a company . In addition, the price was much lower in 2022 when the market anticipated a recession.
So, when it comes to these facilities, you should ask yourself: Would I buy this stock and build a position in it when everything is in a state of overvaluation? The stock price is overpriced. The growth is already priced in.
If a recession occurs, the company will continue to operate. There may be some refinancing issues, some high interest costs, and they may have to sell something, but the business and core fundamentals will remain, because I am absolutely certain that you will continue to keep the light on at night.
But the key when it comes to investing in facilities is the timing of the entry point. When there are fears of a recession, let's say the expansion of data centers has paused for a moment, for 6 months.
This stock is down 40%, and the dividend yield is 5-6%, in line with 10-year Treasury bonds. So, I would say , well, if you want to invest in this, take a look at it when there is a cyclical recession.
With these companies, in Arizona, especially if you know the market there, you know it will be cyclical, and therefore it is best to buy at the lowest levels of the cycle. It was very difficult to buy at that time because the situation looked bad compared to now when it looks good.
But we have seen many companies that looked good 5 years ago, such as Nike, collapse and fade away.
To me it's a very interesting story, but not the right time to invest in the facilities because you're paying the full price for something that still has to happen. I prefer to look at facilities when nothing is expected, when things look bad and I'm buying value.