COLUMBUS, Ohio (AP) ¿ A Robert W. Baird analyst on Thursday upgraded two water utility stocks and two natural gas stocks, saying the four companies are expected to report above-average earnings from lower-risk operations.

Analyst David Parker said in his research note that he is raising his ratings to "Outperform" from "Neutral" on California Water Service Group and Aqua Water along with natural gas distributors Nicor Inc. and Piedmont Natural Gas Co. Inc.

"Fueled by constructive regulatory cost and investment recovery mechanisms, these two utility groups were first to realize stock price support following the credit crisis last fall," he wrote. "Stock price underperformance in recent weeks, we believe, again provides an attractive buying opportunity for lower-risk, highly regulated utility companies."

Shares of California Water rose 59 cents, or 1.4 percent, to $42.46 in trading Thursday morning while shares of Aqua Water were up 40 cents, or 2 percent, to $18.66. Shares of Nicor rose $1.36, or 4 percent, to $33.21 and shares of Piedmont were up 61 cents, or 2 percent, to $25.53.

Parker said the best value, on average, is in the electric utility sector after the credit crisis, the slowing economy and cash-constrained consumers slowed near term energy infrastructure in 2008.

"We believe an argument can be made that regulated utilities could play an important role near term, supporting infrastructure investment during this economic downturn," he said.

Declining commodity costs and improved availability of skilled workers could reduce the cost of new infrastructure, he said.

Parker also believes there are investment opportunities as the industry ¿ fueled by the economic stimulus package and lower costs for renewable energy ¿ develops renewable energy resources and smart grid technology with investment picking up in the second half of the year. Also, he is looking for utilities to develop a more efficient generating fleet as older resources are retired.

Merchant power companies should get a boost by midyear on in the third quarter as the economy picks up along with energy commodity prices.

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