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Wednesday August 25, 2010
15 stocks: A diversified utility portfolio
by Richard Moroney, editor Dow Theory Forecasts  Considering that the 73 utility stocks in the S&P 1500 Index combine to represent just 4% of the index’s market value, they certainly occupy a big place in the hearts of investors. Here, we offer a diversified 12-stock utility portfolio, as well as our top utility choice for investors who only wish to buy one stock in the sector. Which parts of the utility sector offer the most investment potential depends on your perspective. Within the utility sector, electric \utilities and independent power suppliers are the cheapest and offer the best long-term profit potential. Historically, the sector’s modest growth and high debt levels have made it difficult for traditional utilities to manage exceptionally high Overall scores. On the other hand, the S&P 1500 Index’s diversified and natural-gas utilities have outperformed the rest of the sector by a wide margin over the last 12 months and five years. Despite that stock-price momentum, neither group looks expensive. On average, both groups trade at slightly lower P/E ratios than the five-year average for stocks in their groups. 
With few individual utilities representing obvious buy opportunities, we offer the following two options: First, if you just want one utility stock, go with Energen (EGN), which operates both a natural-gas utility and an energy-production business. Energen, a Long-Term Buy, is the only utility on our buy lists. Second, if you’re concerned about income and would rather own traditional utilities, spread your bets with our Top 15 Utilities portfolio, designed to pay a yield comparable to that of the average utility but provide superior growth potential. This portfolio is designed for investors who seek income and wish to own traditional utilities. Rather than buy just one or two utility stocks, we advise investors to spread their bets and purchase equaldollar amounts of all 15 stocks. The resultant portfolio yields nearly as much as the average utility but offers both diversification and superior capital-gains potential. AGL Resources (AGL) - yield 4.6% Avista (AVA) - yield 4.7% Cleco (CNL) - yield 3.4% DPL (DPL) - yield 4.7% DTE Energy (DTE) - yield 4.8% Energen (EGN) - yield 1.2% Entergy (ETR) - yield 4.2% Exelon (EXC) - yield 5.0% IDACORP (IDA) - yield 3.4% NextEra Energy (NEE) - yield 3.7% OGE Energy (OGE) - yield 3.6% Oneok (OKE) - yield 3.9% Public Service Enterprises (PEG) - yield 4.1% UGI (UGI) - yield 3.7% UniSource Energy (UNS) - yield 4.8% Learn more about this financial newsletter at Richard Moroney's Dow Theory Forecasts. |
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