The Motley Fool

Should we now pile into National Grid plc after crashing 20%?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

It’s almost the end of yet another year, and the stock market bull run that began after the financial crisis has continued, bringing with it another swathe of blue-chip stocks reaching multi-year highs. But it hasn’t been a great year for everyone, there have been some surprising exceptions, most notably our big domestic energy companies.

Rip-off energy prices

Traditionally seen as a safe, reliable and defensive segment of the market, our large domestic energy companies have fallen foul of bearish sentiment, with an unlikely victim in National Grid (LSE: NG). Centrica, the parent company of British Gas, and SSE (formerly Scottish and Southern Energy), have both seen previously loyal customers switch to cheaper suppliers in recent times, with investors also leaving in their droves, perhaps fearing lower levels of profit for the foreseeable future.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

But this isn’t the only reason for the relatively sharp sell-off. The government has been threatening to carry out its manifesto promise to bring an end to ‘rip-off energy prices’ by introducing price caps on suppliers’ standard variable tariffs. But I’m not convinced.

Monumental drop

Governments have a pitiful record when it comes to actually carrying out manifesto promises, so it remains to be seen whether or not it will take any real action, or whether energy suppliers themselves will do just enough to keep regulator Ofgem at bay. I suspect the latter.

In the meantime, investors have been spooked by the notion that if Ofgem does impose price caps, there would be a significant impact on Centrica and SSE’s profits. Hence both companies have seen their share prices take a dive this year. But here’s the conundrum. That safest of safe shares, in my view, National Grid, has lost a fifth of its value since May – that’s a monumental drop for such a low-risk utility stock.

The only way is up

Unlike Centrica and SSE, National Grid is a virtual monopoly, with no danger of customers going elsewhere. Neither is it affected by the government’s crackdown on energy prices. Unlike its blue-chip brethren, the London-based utility giant doesn’t have to worry about competition or customer complaints, it just goes about its business of energy transmission and distribution without a care in the world, churning out huge piles of cash in the process.

Pre-tax profits last year came in at £2.1bn on revenues of £15bn, leaving plenty of spare change to distribute to its wide base of UK and international shareholders. Nevertheless, the share price has taken a dive, meaning our largest utility company is now cheap as chips. OK, it’s valued at £30bn, so it’s not really that cheap, but at 870p per share it’s certainly trading at a significant discount to previous highs of 1,135p.

At current levels National Grid offers investors an electrifying yield of 5.2%, with the promise of dividend payouts that rise at least by the rate of inflation each year. As for the battered share price, from hereon in I reckon the only way is up.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.