STEPHEN LEEB
PRESIDENT
LEEB CAPITAL MANAGEMENT, INC.

STOCK: FPL Group, Inc. (NYSE: FPL)
PRICE: $41.72 (as of 4 p.m.January 31)
52-WEEK RANGE: $37.78-48.11
MARKET CAPITALIZATION: $16.47 billion

Stephen Leeb is the president of Leeb Capital Management in Manhattan and has over 25 years of investment experience. FPL Group is a Florida-based energy company that produces electricity using natural gas, wind, and nuclear resources. Mr. Leeb believes FPL is fundamentally misvalued and explains to David Dalley of The New York Sun why its stock price is set to soar.

Why do you like FPL?

I think FPL is a good investment because at the moment it’s being fundamentally misvalued. It’s the country’s largest wind generator, yet Wall Street still values it mostly as a utility rather than an alternative energy company. It is trading at a reasonable multiple and should get a lot of favorable press as the president begins to talk more and more about alternative energy. The market can see that he is serious about the issue.

The company has a wonderful combination of safety and growth. Wall Street is expecting growth of about 6% a year over the next five years for FPL. I think 10% is more reasonable. A major part of its business comes from its regulated utility in Florida. That assures a high dividend payout of about 3% or 4%. At the same time, the deregulated portion of the business, the wind and nuclear energy divisions, is growing at 25% annually.

They also recently announced plans to merge with Constellation Energy [NYSE: CEG] which will give FPL a much greater stake in nuclear energy. They already have a nuclear plant but that will broaden their stake significantly. And a big chunk of nuclear energy is also deregulated, which means big growth opportunities.

Why is now the right time to get on board?

Two main reasons. First, oil and energy have become more of a centerpiece topic as oil prices remain high. Oil is knocking on the door of previous highs. Forward contracts are trading at all-time highs. Energy is becoming a more important part of everyone’s pocketbook. The other thing is the way the market looks at the stock. It’s a funny thing with FPL. Wall Street pays lip service to the fact that a big – and growing – chunk of the company is deregulated but hasn’t fully grasped the implication of those businesses.

The stock is yielding about 3.4% – exactly what other utilities, and the S&P utilities index, are yielding. In other words, the stock is being valued as just a utility. Roughly 70% of the business is regulated, and about 30% is not. Sometime in the next three to five years, as the deregulated portion grows, those numbers should switch right around. If it were being valued correctly right now, as something more than just a utility, it would have a much lower yield [and a higher price].

When will Wall Street start paying more attention?

When the deregulated earnings become a bigger part of the company’s overall profit picture. Once the utility starts growing at 10% or 12% per annum it wakes people up. And once people start to talk about it more as a wind generation company, things will build. It’s inevitable.

Where do you see the price going once the market catches on?

It’s trading at between $41.00 and $42.00 at the moment. I think it’s reasonable that the stock will be up at about $65.00 within two years. I think it’s going to come to be viewed as a very dynamic growth stock very soon. In five years I think it’ll comfortably trade at above $100.00.