Utility Investments

The Dynamic Wealth Report
December 28, 2007

The Dull Way To Make 20%

“There is no way these stocks are boring” exclaims Joey, a grizzled, veteran investor I recently met.  “As a matter of fact I’ve done great with these stocks.  Besides, Warren Buffet owns them.”

His enthusiasm is not to be outdone.  He drew my attention to an industry that many consider boring and sleepy.  Ten years ago, these companies were relegated to widows, orphans, and retirees.  These investments are widely considered the safest and most secure in the stock market.  If you didn’t want much risk, this was the industry for you.

What industry am I talking about?  Utilities of course.

Many investment advisors incorporated utility stocks into portfolios because of their safety.  They were seen as something to run to when fears of recession hit, or as an aggressive substitute to bond investing. The perceived safety of these companies is due in large part to government regulation.

You see, most utilities are a monopoly.  The government allows them to operate, but regulates them heavily.  As a result, the business earnings are limited to a fixed return on invested capital.  This gives the companies great stability and predictability (and makes them rather boring to many).

Utility companies traditionally produce, generate, or distribute electricity or natural gas.  Recently, the industry has grown to include water companies as well.  These businesses are very basic.  People will always need electricity, gas and water.

You may know that a few years ago the industry started to change.  The government started to deregulate parts of the business.  This opened the floodgates to improved production, and allowed for the emergence of independent power producers.  Suddenly, some utility companies could make more than a standard fixed rate of return.  The industry became a very exciting one to invest in, and Wall Street took notice.

However, once the initial excitement started to wear off some cracks started to appear.  You all remember Enron.  Clearly deregulation caused a number of unintended consequences that took a few years to work out.  The first few years were a bit rough as the negative publicity caused investors to flee.

-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?

Our own small-company specialist, Robert Morris, has found a way to 'sniff out' tiny penny stocks on the verge of a major breakout.  And the timing for this has never been better.

You see, the system takes advantage of an obscure SEC regulation that sends penny stock prices through the roof.

We've seen some stocks gain 852%... 5,450%... even 17,496% in no time flat.

Click here for the details...
-----------------------------------

•   Janney Montgomery Scott downgraded First Horizon National (FHN) a bank holding company from a Buy to a Neutral rating.

•  Och-Ziff Capital Management (OZM) the asset management firm completed its IPO in November.  Three investment banks initiated coverage this week, Citigroup, JP Morgan, and Keefe Bruyette.

•  BMO Capital Markets downgraded Respironics (RESP) to Market Perform after the company received a buyout offer the week prior.

 Print Page                                                   Bookmark Us