This week, in our focus on the winning analysts in each industry category from our
Analyst Rankings -- Equity 2000
, we profile the top analysts tracking electric utilities. Next week we'll look at semiconductor equipment. (Our last focus was on
oil and gas exploration and production.)
Electric utilities had a banner year in 2000, outperforming the
S&P 500 index by more than 56 percentage points. As investors sought a safe haven from the carnage in the technology sector, many fled to defensive areas of the market like utilities.
But the group has suffered so far this year, partly from the fallout of the California power crisis and partly because of sector rotation out of defensive stocks as the
Federal Reserve's interest rate cuts make growth stocks once again attractive.
Our top two utilities analysts acknowledge that the problems in California have cooled investor confidence in the group -- the crisis has set off rolling blackouts throughout the state and left its two-largest utilities,
Pacific Gas & Electric
, a subsidiary of
Southern California Edison
, a unit of
, near bankruptcy. However, both analysts feel that the crisis in California has had a disproportionately negative influence on investor sentiment. (
has been following all the twists and turns of the
story in California.)
No. 1-ranked analyst Steve Fleishman of
emphasizes that the elements that combined to create the situation are unique to California and its deregulation plan and are therefore unlikely to crop up in other parts of the country. Projecting strong earnings for most companies in the utilities sector, he sees plenty of upside potential, especially among power producers that have nuclear or coal generation and are selling into power markets being driven by high-priced natural gas. He names
as his top pick. Merrill Lynch has had no investment banking relationship with Exelon.
analyst Jonathan Raleigh, our second-place winner, says that the market's punishment of power suppliers is overdone, believing that California's legislature has signaled its intention to pay the generators regardless of the utilities' ability to do so. He predicts strong performance from the independent power producers (IPPs), selecting
as his top pick. Goldman Sachs has had an investment banking relationship with Calpine. (Third-place winner Daniel Ford of
was unavailable for an interview.)
* Third-place winner Daniel Ford was not available for an interview.
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