The Only Big Stocks Going Up
Thursday, March 29th, 2007
By Michael Lombardi, MBA for Profit Confidential
The only “big” stocks going up in the United States might surprise you.
Over the past 12 months, the Dow Jones U.S. Utility Index is up 28%. A price graph of the index, which represents the largest gas, electricity, and water utility companies in America, illustrates a straight upward moving line that started in early 2003.
The Dow Jones U.S. Utility Index is at an all-time price high and just keeps moving higher. Yes, the Dow Jones Industrial Average and the Dow Jones Transports both broke record highs earlier this year — but they are both still well below their 1999 highs if we take inflation into account. Meanwhile, the utility stocks continue to hit new after-inflation price highs.
Why are utility stocks rising in price so quickly? Three answers to this question:
First, it’s the flight to income. With so much capital and liquidity in the marketplace, a lot of money is chasing a few opportunities. This has brought down the yield on most investments, making the old “widow” utility stocks attractive for their income to all types of investors.
Second, the consensus among analysts has the Federal Reserve cutting interest rates this year to spur the slowing U.S. economy. Utility stocks act like bonds when interest rates fall; they move up in price.
And third, utility companies provide necessities consumers cannot live without. We all need gas in the winter to heat our homes and gas to heat our water… maybe even gas to cook. We all need electricity and water, too. There’s a school of thought out there that believes as these resources become more scarce and more expensive to provide the utility companies will make more money. It’s comparable to the oil companies making bigger profits when oil prices rise — as they have been lately (for example, Exxon’s multi-billion-dollar profits).
Would I buy utility stocks at this point? If I were looking for income, if I needed “safe” stocks for slow growth, if I believed the Fed will cut interest rates to jumpstart the slowing U.S. economy, and if I was looking for stocks that will not fall drastically during a market meltdown… the utility stocks are the only “big” stocks that continue to fit the bill.
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Tags: dow jones, interest rates, U.S. economy
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
