Plug into diversified utilities

By Chip Brian | September 1, 2011 | Last updated on September 1, 2011
3 min read

Emotions frequently run high in the equity markets, but lately the rollercoaster is astonishing. On Aug. 17, the Dow Jones Industrial Average crossed the unchanged level 37 times, ranging between a loss of near 84 and a gain of near 124 before ending the trading day essentially unchanged.

Risk aversion has generated declines throughout equity markets. Sentiment has lifted volatility in a generalized atmosphere of doubt concerning European banks’ interbank liquidity as well as continuing fears of economic contraction in the U.S. and Europe. The Canadian economy is doing comparatively well.

What sector can investors turn to for relative safety and yield? According to our analytics team, Utilities—more specifically, Diversified Utilities—is a wise choice at this time. They represent one of the best-performing sectors in the S&P 500 in the volatile third quarter.

No matter what’s happening in the world, consumers need to keep the power on and the water running. That translates into relatively predictable profits and the stability to pay dividends to investors.

Look for income as well as capital gains. Since the production and distribution of utilities requires significant infrastructure, these firms often carry large amounts of debt. Therefore, the utilities sector performs best when interest rates are falling or remain low.

The Utilities sector contains companies such as electric, gas and water firms, and the Diversified Utilities sector includes companies that distribute multiple resources. The Diversified Utilities industry group is in an uptrend, and SmarTrend has identified uptrends in the stocks of several companies in this sector.

DPL (DPL Inc.), through its principal subsidiary, The Dayton Power and Light Company, engages in the generation, transmission, and distribution of electricity to residential, commercial, industrial and governmental customers in west-central Ohio. The company also has subsidiaries that engage in the operation of peaking energy-generation facilities. DPL is in an uptrend as of March 9, 2011, when it closed at $26.77. With a price of $29.85 in mid-August 2011, this stock has increased 11.5% since SmarTrend issued its uptrend alert.

Due to market volatility through the third quarter, most uptrends discussed here have been identified recently. Changes in stock prices since the trend identification date are not as relevant as they would be under normal conditions.

ED (Consolidated Edison, Inc.) provides electric, gas, and steam utility services in New York City, Westchester County, and adjacent areas of northern New Jersey and northeastern Pennsylvania.

ED also operates generating plants, participates in other infrastructure projects, and provides energy-efficiency services. Smar-Trend currently shows shares of ED to be in an uptrend and issued the alert on August 12, 2011 at $54.18. Shares of ED were trading during late August at $54.78.

NI (NiSource Inc.), an energy holding company, provides through its subsidiaries natural gas, electricity, and other products and services primarily in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and Massachusetts. It also engages in gas and power marketing, and ventures focused on distributed power generation technologies, including cogeneration facilities, fuel cells and storage systems. During late August, NI stock was trading in the range of $20 and SmarTrend issued an alert on its Uptrend on August 17, 2011 at $20.65.

WEC (Wisconsin Energy Corporation) engages in the generation, distribution, and sale of electric energy and steam, as well as the purchase, distribution, and sale and transportation of natural gas in Wisconsin and parts of the upper peninsula of Michigan. The company generates electricity from coal, natural gas, wind and hydro sources. SmarTrend shows shares of WEC in an Uptrend and issued the alert on August 12, 2011 at $29.98. In late August, WEC was trading at $30.46.

Within the Electric Utilities sector, the Central Vermont Public Service Corporation stands out.

CV purchases, produces, transmits, distributes and sells electricity in Vermont, and has a subsidiary that services customers in parts of New Hampshire bordering the Connecticut River. SmarTrend identified the uptrend for CV on October 25, 2010 at $20.88, and with the stock trading at $34.87 in late August, the return to date has been 67%.

It’s wise to diversify, and Diversified Utilities is a great sector to include, given the current global economic conditions.

Utilities a bright spot in weak market

CHIP BRIAN is CEO and Founder of SmarTrend, SmarTrend Alert, and Trade The Trend are registered trademarks of Comtex News Network, Inc.

Chip Brian