AYE is the utility holding company for Monongahela Power Co., The Potomac Edison Co., West Penn Power Co., Allegheny Generating Co. and others. For the FY ended 12/31/00, revenues rose 43% to $4.01B. Net income before extra. item rose 10% to $313.7M. Results reflect the acquisition of the assets of West Virginia Power and increased number of customers, partially offset by higher interest expenses due to increased LT debt outstanding.

February 22, 2001

Allegheny Energy Incorporated (AYE) provides its customers with electric generation and electric/natural gas delivery. The company also invests in and develops telecommunications and energy-related projects. Investing in utility companies generally requires a lot of patience, as profits are slowly accumulated over time. However, it seems this rule doesn’t apply to AYE shares, which have more than doubled over the last year. What’s more, we also like AYE as a split candidate. Currently, the company has 110.44 million shares outstanding and 260 million authorized, enough for a 2:1 stock split. Presently, shares have advanced nearly 20% over the last few weeks and could be gearing up for a break out rally. So, looking forward, we’ll look for initial resistance to arise at the all time high of $48.65. Advances through resistance, when combined with good volume of 670,000 shares or better will present us with our first potential entry point. Further opportunities will come when AYE shares advance through the $50 mark. As for support, we expect the $47 mark to be firm, bolstered by the 5-dma of $47.05. We’ll set our stops at $45.94.

Picked on February 22nd @ $48.22
Change since picked 0.00
Stop Loss @ $45.94

March 8, 2001

The state-by-state restructuring of the electric utility industry is offering companies a rare opportunity to build major independent power producing businesses. Just a handful of companies are poised to benefit from this transformation, of which Allegheny is certainly one. To take advantage of the rollout, AYE is seeking to achieve critical mass through a combination of new energy plants and the transfer of existing generating operations to unregulated status. We’re hoping that positive news from this build-out continues to propel AYE shares. Looking at the chart, AYE appears to be gaining momentum off its recent low, adding $0.38 in today’s trading. The short-term technical indicators also point to higher levels, with the MACD flattening out after the recent decline and the stochastic showing a bullish crossover. What is of some concern to us, however, is the volume. The stock normally logs around 653,000 shares based on a three-month average, but Thursday’s run came on volume of just 206,200 shares. This could indicate a lack of buyers in the stock. Bearing this in mind, we’ll look for initial resistance to come at the $49 mark (all time high), followed by a more difficult test at $50. Support will come at the 20-dma of $47.06, with an additional base at the March 6 intra-day low of $46.43. Look for entries on bounces off of support or break above $49 on volume of at least 300,000 shares traded by noon.

Picked on February 22nd @ $48.22
Change since picked –0.72
Stop Loss @ $45.94

March 6, 2001

As deregulation spreads across the country, Allegheny has a three-pronged strategy to gain more share of the energy market and increase its total plant production to 9,600 MW’s by 2003. The whole idea is to boost AYE’s profitability by enlarging its already sizeable generating business, offering bundled energy services, and venturing into distributed power generation. Shares of the Maryland-based company continued to form a long consolidation base near the $47 mark today, and lost just one cent during the trading session. During today’s trading activity, the stock gave a sharp intraday bounce off the 30-dma ($46.30) and formed a bullish hammer candlestick formation. A hammer formation frequently marks the bottom of a move and gives us hope of a near-term turn around. Still, what has really captured our attention has been the lightness in volume over the past three trading days. The stock's three-month average volume is 682,363 shares per day. However, over the past three sessions, AYE has logged an average of just 215,000 shares. We feel this is an excellent sign of a lack of sellers in the stock. With this in mind, we’ll look for an upside move to encounter resistance at the 10-dma of $47.50 and then at the $49 mark. Support comes in at the 30-dma of $46.30, bolstered by intraday lows. Look for entries to come when the stock breaks above resistance or bounces swiftly from support on strong volume of 350,000 shares traded by noon. We’ll continue to hold a firm stop at $45.94.

Picked on February 22nd @ $48.22
Change since picked –1.22
Stop Loss @ $45.94

March 4, 2001

Allegheny’s recent agreement to purchase Merrill Lynch's energy-trading business, Global Energy Markets (GEM), for $490 million could soon position AYE among the top-10 domestic energy traders worldwide. Assuming the Federal Energy Regulatory Commission and the Federal Trade Commission approve the acquisition, the deal should close by the end of this quarter. Once the buyout is complete, the combined company will gain better leverage in its existing physical-power-generation base, and should have combined capacity of 13,000 megawatts within the next five years. For us, we’re hoping that news of a confirmed buyout, which is due by month’s end, causes shares to regain upward momentum. In order for this to occur, it is important that the stock holds above support at either the $47 mark, bolstered by the 20-dma of $46.72, or at the 30-dma of $46.04, before reaching our stop. With that said, we’ll look for entry points to come from a bounce off either of these levels or a run through resistance at $49, when volume reaches at least 350,000 shares traded by mid-day. We will set our stop level at $45.94 to limit our downside risk.

Picked on February 22nd @ $48.22
Change since picked –1.22
Stop Loss @ $45.94