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TWST: Now that we are more than half way through the year, how have utility
stocks done so far?
Mr. Howald: Very well. Utilities have outperformed the broad markets, depending
on what index you look at, for the last three years on a total return basis. So
far this year, we've again seen some pretty strong performances & up 12.5% in
the first half of 2006 compared with the broad markets, which were up only about
2.5%. We recently asked ourselves the question, "Where does the group stand for
the second half of 2006?" We concluded that this strength in the utility sector
can continue, not only this year but possibly into 2007 as well. TWST: What is intriguing investors here that has created that strong
performance? What's the appeal?
Mr. Howald: There are a couple of things that have been going on. The dividend
tax being cut back in 2003 probably started the whole thing. A lot of utilities
still have exposure to natural gas prices, which over the last couple of years
have been pretty strong. Power markets have begun to recover from the trough
back in 2002-2003. Finally, many utilities were in retrenchment mode over the
past several years after the collapse of Enron. The credit rating agencies put
pressure on many companies in the utility sector to strengthen their balance
sheets. We have seen that occur pretty significantly over the last couple of
years; debt to cap has improved in the utility space from about 60% a few years
ago to about 53% last year.
Tickers included in this excerpt: BKH, CEG, EP, FPL, SUG, WMB
For more information call (212) 952 7433. The
Wall Street Transcript does not endorse any of the comments made by interviewees, and does
not make stock recommendations.
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