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Barclays' 5 Best Utilities Stocks for 2012

Stocks in this article: AEP NU NST OGE CPN AES

NEW YORK ( TheStreet) -- Barclays Capital published a report Jan. 3 titled "Go With the Flow." Daniel Ford, Gregg Orrill, Theodore W. Brooks, Ross A. Fowler, M. Beth Straka and Noah Hauser have identified their most preferred power and utilities stocks for investment in 2012.

Here are the five stocks Barclays Capital is bullish about.

American Electric Power (AEP) has been given an over-weight rating by Barclays Capital.

The company received a final judgment on its Ohio generation and distribution cases on Dec. 14, 2011.

The Ohio jurisdiction has substantial impact of 30% to 40% on American Electric Power's earnings, indicating a material future earnings growth.

Even though both cases were settled, the stock was still trading at a 12% discount through the day of the ruling two weeks ago.

However in the two weeks after the ruling, the stock outperformed the regulated group by 1.1% -- up by 7.6% vs. the 6.5% regulated group increase. Barclays Capital expects the outperformance to continue in 2012.

Moreover, American Electric Power, along with other partners, announced a plan to build a gas pipeline in Ohio for the purpose of transporting Utica shale gas to the Eastern marketplace.

Barclays Capital believes that American Electric Power will earn $3.10, $3.17 and $3.28 in 2011, 2012 and 2013, respectively.

Although the stock has performed well recently, it still trades at an 11% discount to its peers. This is despite the new earnings visibility and a 4.5% yield indicating a 10% premium to the average dividend yield for regulated utilities.

Barclays Capital has given a price target of $45 per share, indicating a regulated group utility multiple of 13.3 times Barclays' 2013 EPS estimate of $3.28, plus $1/share of cash. Jim Simons' Renaissance Technologies had the largest stake in AEP among the 350-plus hedge funds we are tracking.

Northeast Utilities (NU)/ NSTAR (NST) has been given an over-weight rating by Barclays Capital.

In the view of Barclays Capital, once the company's merger with NSTAR is finalized, it should create one of the best-positioned large-cap regulated utilities in Barclays Capital's coverage universe.


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