WSJ Contributor Warns Against Buying Utility Stocks on CNBC
NEW YORK (TheStreet) -- With interest rates low and investors "searching for yield," people have been buying utility stocks "by the boat load," CNBC's Bill Griffeth said on "Closing Bell" Wednesday.
However, Wall Street Journal columnist Ken Brown warned against this.
"Utilities yield 3.3% which look pretty good compared to treasuries. And everyone's just been buying. The sector's up over 20% this year," Brown noted.
Griffeth asked if investors are making a mistake by flocking to utility stocks.
"I think so," Brown replied, explaining that the industry looks good right now because interest rates are low and shares of utility stocks are higher, which push the cost of capital down.
"It is all about" what federal regulators let investors charge, Brown explained.
"What's happened is, the borrowing costs for these guys has gone down but the fees that they're allowed to charge customers hasn't gone down as much. So that spread makes it a great time to be a utility. But that's not going to last forever," he continued.
Despite what some investors think, utility stocks are not like bonds, Brown warned that they are volatile.
With the U.S. turning to alternative forms of energy, electricity companies are shutting down more plants, which investors must take into consideration, Brown noted.
The Utilities Select Sector SPDR Fund (XLU), which measures the index of utility stocks on the S&P 500, closed higher by 0.21% to $52.98 on Wednesday.