GICS 55: Utilities Services Sector

Definition: The GICS Utilities Sector encompasses those companies considered electric, gas or water utilities, or companies that operate as independent producers and/or distributors of power. This sector includes both nuclear and non-nuclear facilities.

First look at the 15 Dow Jones Utilities Index Component Stocks:

See Table below

See List of stocks below

Bill Cara's Understanding of the Utilities Sector

Overview: Investors, who do like the safe and reliable income from dividends need only to determine the S&P ratings on all the stock components of the Dow Jones Utility Average, S&P SPDRS (Amex: XLU) or the HOLDRS (Amex: UTH). Then they have to find the highest-rated companies in these groups that pay the highest dividend yields.

For investors who find it a bit too risky investing in individual stocks, I recommend the SPDR Utilities or the HOLDRS (Amex: UTH), which are popular ETFs.

As with all securities, there is an element of cyclicality in the utilities sector. You should try to add to your positions when the market is down, which results in a higher than average dividend yield.

But, when assessing the quality of the companies in this sector, I recommend not listening to the sell-side because when they have an axe to grind you will not likely be told about important issues like Moody's or S&P' credit rating changes.

In 1999, seldom during the rush to buy up the stocks of utility companies did I hear the one practical piece of advice from Wall Street that could have saved investors from the collapse of the utility stock bubble, which is: always look at the credit rating before buying any security for fixed-income.

What you have to do with the individual utility sector stocks is sell them on S&P or Moody's rating downgrades. Don't even bother to read the report.

Also, as utility sector companies hold large bond positions, and their quarterly balance sheets are marked to market, their assets take quite a hit during periods of rising interest rates.

My quarterly sector review, which follows, will benefit from the completion of my proprietary programmed trading models, say by mid 2Q05.

Sector 55

As 2005 is believed to be a period where current bond yields will rise, and prices of the bond portfolio sink, the utility sector should be under-weighted, in my view.

Sector 55

In 1Q05, the Utility sector did rally, far more than I had anticipated. Even in the last week of the quarter, there was a bounce up off the 50-day Moving Average.

I'd think the sector could even improve from here, but doubt that will happen. You see, short interest rates are rising quickly " the U.S. 2-year Treasury rate is 3.84 pct, which is getting up close to the range of dividend yields in the Utility sector. Pretty soon, there will be no reason to hold most of the Utility stocks.

One of the Utility stocks I do like " for business growth reasons -- is Exelon Corp (NYSE: EXC). It closed Easter weekend at $44.76, down from its March high of $47.16, and has a bit to go on the down side before I'd buy it. Besides, the 17.0 PE is too high; but I still like this company longer-term " one of the few in the Utility sector. I am a real believer in the need for nuclear power.

GICS 55: Utility Sector Table:

IndustryId	Industry Name	Sub Industry Id	Sub-Industry Name	Sub-Industry Description
5510 Utilities
551010	Electric Utilities	55101010	Electric Utilities	Companies that produce or distribute electricity. Includes both nuclear and non-nuclear facilities.
551020	Gas Utilities	55102010	Gas Utilities	Companies whose main charter is to distribute and transmit natural and manufactured gas. Excludes companies in the Oil & Gas Exploration & Production sub-industry. Also excludes diversified midstream natural gas companies classified in the Oil & Gas Refining, Marketing & Transportation sub-industry.
551030	Multi-Utilities	55103010	Multi-Utilities	Utility companies with significantly diversified activities in addition to core Electric Utility, Gas Utility and/or Water Utility operations.
551040	Water Utilities	55104010	Water Utilities	Companies that purchase and redistribute water to the end-consumer, including large-scale water treatment systems.

GICS 55: Utility Sector Stocks

Posted by Bill Cara at January 20, 2005 1:46 PM