When the stock markets make new highs which is a great thing, there are two ways it can go one is go up more or second is a correction or downwards. In retrospective it is easy to see where it is going but similar to predicting election results, no one is quite sure any more. At some point, it is a good idea to be a little defensive and look at Utility Companies or those investor owned companies which provided hydro to your home or heat your home during the winter (gas companies). The first choice is where do you live and who provides you. The great thing about utility companies is if you live in an urban area, you are likely dependent on the utility and if you do not pay your bill, the utility shuts off the power. The big question about them is how is the general economy the utility serves doing and how much inexpensive hydro do they produce, an example is owning hydro dams.

Craig McGee of Morningside Research looked at utility stocks with a focus on downside protection. He was searching for the best stocks using the forward Price/Earnings Ratio, the Price to Cash Flow, the expected dividend yield relative to the historical median yield and low earnings variability. In other words, companies which tend to be consistently profitable and expect to continue their ways.

The top ten companies were ranked:

Rank     Company                  Symbol    P/E         P/CF      Expected   Earnings

–                  –                              –              –               –          Yield %       Variability %

1          Entergy Corp             ETR-N     12.39      3.51        4.36             10.11

2.        Southern Co               SO-N        15.82     6.27        4.81              3.41

3.         Questar Corp             STR-N      18.62     8.58        3.18            26.04

4.         Northwest Nat Gas    NWN-N     19.54     7.19       4.09               2.96

5.         Hawaiian Electric          HE-N      14.62     5.83       5.23               7.20

6.        Wisconsin Energy        WEC-N      17.46    7.76       3.44              5.18

7.        Consolidate Edison        ED-N       14.67    6.69       4.58              2.49

8.         PG&E                          PCG-N       15.21    4.74      3.99              8.06

9.         Xcel Energy                XEL-N         15.34    5.93       3.91             2.37

10.        Teco Energy                TE-N         17.19     5.70       5.12            13.00

The above picked 4 variables which give a good picture of the utility and you can add more to complete your analysis but the data shows there are choices to minimize risk. If there is a pullback of the market, shares in utilities tend to rise because of the consistency of the earnings. As long as the area the utility serves is not recession (or is well diversified) and the plants that produce the hydro – gas, coal, hydro, nuclear have low fixed costs relative to the income they are receiving, the companies can be a good investment for a long period of time.

There are more questions than answers, till the next time – to raising questions.