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Hot Utility Stocks (Part 2)

The heat wave that's had Wall Street in its grasp has made savvy traders think about energy, and utility companies, and utility company stocks.

Paul Fremont, managing director at Jefferies & Co., has some carefully-chosen selections in the energy area to power a portfolio.

"With gas and oil prices as high as they have been recently, we have seen power prices follow suit, and that should mean more cash flow and profits for these...companies," Fremont told CNBC.

Recommendations:

So what's on his list?

"We think that the best bets are in the commodity names, so our favorite names right now would be First Energy , NRG Energy, and Dynegy," he said.

Fremont finds Dynegy to be very leveraged to the short-supply argument, since it owns power plants in the Midwest, where there is no formal compensation scheme in place for capacity.

He's less enthusiastic about regulated utilities.

"They're less well-positioned to benefit from what's going on, in terms of higher power prices," he said.

"Because their profits are regulated, they're not going to see any benefit; in addition, with the elimination of the dividend tax cut potentially coming up over the next several years, that could be a drag on their desirability to investors."

Disclosures:

Neither Fremont nor his firm own shares or have a banking relationship with First Energy, NRG Energy or Dynegy.

Disclaimer

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