The Benefits of Utilities

06/02/2014 11:08 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Given the current state of the US economy, Roger Conrad addresses the issue of why it is so important for investors to find utility stocks off the beaten path.

SPEAKER:  Hi, I am here today with Roger Conrad from the Capitalist Times and we are going to talk a little bit about utilities, utilities in general and some utility stocks.  Why should investors consider utilities and what is there for them?

ROGER CONRAD:  I found them to be very good wealth building vehicles over time if you reinvest the dividends.  They also pay pretty good dividends and they do not fluctuate a lot in terms of pricing, so they tend to be, if somebody wants to have something they want to consider secure, those are all very big positives.  We are also 10 years into what I would call a great deleveraging of the sector.  Some people might remember the Enron calamity back in 2001 when that company vanished off the earth.  Well a lot of companies really got caught up in the mess and back in 2003, the early part of that year, roughly two dozen companies were either in bankruptcy or pretty close to it. 

SPEAKER:  And they are coming back now.

ROGER CONRAD:  They are coming back; they have been cutting debt for 10 years.  They have been cutting operating risk, so what you have is really a sector where everybody is being very conservative and that is again a very good thing in the kind of economy we have where things have been going along somewhat sluggishly.  We also have mergers.  This is a history of consolidation is basically the history of the utility business.  We have investors like Warren Buffet that are buying these things.  We have Canadian companies coming in and thirdly, utilities themselves are merging, so that creates a positive economy to scale.  There has really never been a utility merger or merger between regulated utilities that has failed to create a stronger entity.

SPEAKER:  Are there a few particular stocks or is there a sector ETF plan that you think people should consider in utilities?

ROGER CONRAD:  Well, I think in terms of stocks, you want to look for things that are a little bit off the beaten path.  There are certainly a lot of utilities that are pretty expensive in the current market, but if you look at something like Exelon, for example that is actually the best performing utility in 2014.  Almost no one bullish on it at the beginning of this year, but really low bar of expectations.

SPEAKER:  Still attractive right now at these prices?

ROGER CONRAD:  I think so.  They have the two parts of the business, the utility business they are merging that with Pepco Holdings, which is going to create a lot of scale for them.  They also have a wholesale power business, the largest fleet of nuclear power plants in the U.S., so I think a lot of upside from that as well. 

SPEAKER:  Thank you, Roger. 

ROGER CONRAD:  I thank you.

SPEAKER:  Thanks again for joining us at the Money 

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