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Energy Utilities: Buy Exelon Corp. (EXC:NYSE)

Posted May 16, 2008

by Andrew Snyder

Baltimore — (TFN): Here’s a news story I bet you haven’t heard. It’s created a nearly catastrophic economic environment in one of our nation’s state capitals, but few folks are talking about it. Maybe it is because they are scared to raise the subject.

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Just a few weeks ago, an avalanche took out Juneau, Alaska’s power supply. Nearly two miles of high-power transmission lines from a nearby hydroelectric plant were destroyed. It will take more than three months to fix the problem. Meanwhile, the entire city (including all the government offices, mind you) is forced to get its energy from a handful of huge city-owned diesel generators.

The city is burning some 100,000 gallons of diesel each day. At a price around $4 per gallon, the tab is getting astronomically high. Thanks to the sudden spike in generating costs, Juneau residents will see a 450% increase in their electric bills next month. The cost of a single kilowatt of electricity will cost as much as $0.50.

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All across the capital city, people are in a panic. They are unplugging refrigerators, taking cold showers, and even living without heat. Citizens are forced to make a scary choice, “heat or eat.”

The town’s businesses are feeling the pain as well. Don’t try to pay your gasoline bill at the pump. The credit card readers burn too much electricity so store operators have shut them off.

What’s happening in Juneau is almost certainly a predictor of what is to come to the rest of the nation. It may take years or even a decade, but our energy addiction will eventually kill us.

Right now, most electricity markets are regulated, but that won’t last forever. Energy producers must make a profit to survive. As their production costs continue to rise, the government will eventually be forced to allow them to raise their prices.

There has never been a better time to invest in the nation’s utility providers. They are safe investments, offer great appreciation potential, and many of them pay dividends far higher than any bank’s CD rates.

There are dozens of utility companies to invest in. Nearly all are seeing increased demand for their limited supply of electricity. My advice is to look at a few of your local providers (it is the old adage, invest in what you use) and widen your search from there.

Or if you are looking for a national favorite, take a look at Exelon Corp. (EXC:NYSE). Thanks to its blend of nuclear, hydroelectric, and natural gas-fired power plants, the company’s share price has been on a steady rise. Over the last two years, stockholders saw their shares nearly double in value. The company even pays a decent dividend.

If you are looking for a safe investment yet want an opportunity to actually make some money, the utility industry is the place to be. Let’s face it, we are not giving up our addiction to electricity anytime soon. These companies will remain powerhouses long after traditional companies fall off the back of the business cycle.
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Posted by Andrew Snyder · Filed Under Hot Stock Pick of the Week 

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