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A Scandalous--and Undervalued--Stock Pick

We added this name to our list of high-conviction ideas in August.

In early August, Morningstar's equity analysts updated their list of high-conviction picks. One of the stocks added to the list was First Energy (FE).

FirstEnergy shares declined more than 30% following the arrest of the Ohio House Speaker and four others on racketeering charges. Although no executives of the utility have been charged, the criminal complaint refers to a “Company A” (which is clearly FirstEnergy) and its current and past affiliates as the source of most of the funds used in the alleged bribery for the passage of Ohio House Bill 6 in August 2019. The event is a public relations nightmare, and regulatory and political relationships in Ohio will be strained for several years.