Utility Stocks Hotter with Deregulation
Ask Dan Eggers which electric utility he'd plug your portfolio into, and he'll tell you it's one that operates in a deregulated environment.
"Rising fuel-cost pressures, rising O&M cost pressures are going to put pressure on earned returns of the regulated utilities, potentially putting some risk on their earnings power, independent of some good-weather trends right now," the Credit Suisse analyst told CNBC.
Recommendations:
"Our top idea right now is Public Service Enterprise Group," he said. "New Jersey started deregulation in 2002, so you've had a number of years to phase in power prices going to what you'd call 'market rates.'"
Eggers also likes Texas-based Reliant Energy.
"We're a little nervous about the retail business for the second quarter, given some of the weather and the volatility in the Texas market," he said.
"But what we see in Reliant that we like is that they're the least hedged of all the 'merchant generators,' meaning they have the best (ability) to take advantage of high gas prices, high commodity prices, which should translate into higher earnings power."
His third pick is FPL Group.
Disclosures:
Neither Eggers nor his firm own shares or have a banking relationship with Public Service Enterprise Group, FPL Group, or Reliant Energy.
