Fizzling Power Company Stocks Darken Sector

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Utility weakness scares the pants off me, because I know that these companies, companies like Duke (DUK - commentary - Cramer's Take) and TXU (TXU - commentary - Cramer's Take) and American Electric Power (AEP - commentary - Cramer's Take), have gigantic amounts of debt, and I wonder whether the whole industry went so nuts during the kilowatt spike that the structures no longer can support the debt.

It was one thing when the Dynegies (DYN - commentary - Cramer's Take) and Reliants (RRI - commentary - Cramer's Take) got crushed. That made sense. These were companies that created an industry that wasn't an industry.

But the stunning declines in the traditional utilities tells me that there is much more trouble ahead in this industry. When an analyst as good as Kit Konolige at Morgan Stanley downgrades AEP, and when TXU yields 13%, that sends off bells, sirens and whistles.

As I am convinced that we are back in a recession, these stocks should be going up, not down. It is another example of the textbook simply not working at all.

These stocks are widely owned. They are considered safe by a generation of people who should have known better. Now they are unraveling.

I think all of these stocks can go lower, and the banks that lent them money -- again, chiefly J.P. Morgan Chase (JPM - commentary - Cramer's Take) -- will have to re-evaluate some credits.

The blame for all of this unraveling is squarely on the execs who decided their plain-vanilla businesses could and should be exciting. Most of these companies now look like mini-Enrons.

Let's hope that the denouement is less painful to the shareholders. It won't end, though, until the utility index takes out its 1981 low of 120 and change. Given that it's at 180 now, that's a lot of downside to dodge.

It is worth taking action, even now.

Amazing.

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column to [e-mail]. Click here to get Cramer's book, "Confessions of a Street Addict."