Icon Telecommunications & Utilities fund manager Robert Straus says the power giant shines even in uncertain times.
FORTUNE — Icon manager Robert Straus is a by-the-numbers stock picker. “We think it’s very important to be non-emotional,” he says. He examines earnings, growth rates, and risk, and invests in utilities with the best “value-to-price” ratio. The result: 6% annual returns over the past 10 years, more than double the S&P 500’s, and his Icon Telecommunications & Utilities fund (ICTUX). The reason: They’ve paid solid dividends and exhibited relatively low risk during uncertain times. Despite that, he thinks the sector remains undervalued: He puts its average value-to-price ratio at 1.13. (A ratio of 1, by definition, means a stock is fairly valued, so any higher number is better.)
2. Southern stands out in its sector
A central element of Straus’s valuation method is the company’s annualized earnings growth rate, which Wall Street analysts project at between 5.5% and 6% through 2013. To be conservative, Straus assumes Southern’s growth rate will be 4.5%. But that figure still easily beats the utilities sector’s projected growth rate of 3.9%, and it still puts Southern’s value-to-price ratio at 1.29, well above the rest of the sector. Straus thinks the market is simply not crediting Southern (SO) for its likely growth.
3. It’s consistently consistent.
Some analysts worry that the regulatory environment could turn against Southern, which generates most of its power from coal. Straus deflects this and other risks by pointing to the company’s astoundingly consistent track record throughout periods of both regulatory change and inflation, which also has the potential to hurt utility companies. Southern has been an island of stability; its stock has been only one-third as volatile as utilities stocks overall, which themselves are less volatile than the S&P 500.
4. Have we got a dividend for you
Southern’s dividend is rock solid. The company hasn’t missed or lowered its quarterly payment since 1979 and has raised it the past 10 years in a row. While the average yield on an S&P 500 stock is 2.3% and 10-year Treasuries will get you 2%, Southern shares yield 4.7%. Sooner or later, Straus reasons, the market will recognize Southern’s strengths, and the stock price will rise. When that happens, he says, the shares, now at $43, “should reach at least $50 — and that’s being conservative. We can even see $55.”
This article is from the November 21, 2011 issue of Fortune.