Archive for the ‘Utilities Stocks’ Category

Utilities Buzz Stocks and ETFs- VPU, NRG and SO

Thursday, February 19th, 2009

Utilities stocks and ETFs usually weather a downturn in an economic cycle better than most other companies largely because of their predictable earnings.

Utilities vs. Bonds

Low interest rates are forcing investors to look beyond low yielding money market rates and bank CDs for income. To meet your income needs you need to use the right investment products.

Utility stocks and ETFs are an excellent choice to help you build the income portion or your investment portfolio. In many cases investors can net more income from the dividends paid by utility stocks and ETFs. Why? Because the qualified dividend income is taxed at a maximum rate of 15% (or to 5% for taxpayers in the lowest two tax brackets) whereas the taxable income from bonds is taxed at higher ordinary income rates. Even though most utility stocks and ETFs posted negative performance last year, they are among the best performing industry sectors so far in the early going of 2009.

Here are a few utilities buzz stocks and ETFs we’re watching:

1. Vanguard Utilities ETF (NYSEArca: VPU): VPU only fell 28% in 2008, compared to the S&P 500’s 38% drop. The 12-month yield is 3.9%, and the median market size of utilities stocks in the ETF is $10.7 billion. Holdings include: Exelon Corp. (NYSE: EXC), Southern Co. (NYSE: SO), FirstEnergy Corp. (NYSE: FE) and American Electric Power Co., Inc. (NYSE: AEP)

2. NRG Energy, Inc. (NYSE: NRG): Timing could be everything with this wholesale power generation company. Exelon Corp. offered $6.2 billion to buy NRG in late 2008. In an open letter to its shareholders, NRG stated that it would “support a deal with Exelon at a fair price but, at this point, we have no reason to believe they are willing to offer a fair price.” We expect Exelon to come back with an offer NRG can’t refuse. If this happens, NRG shareholders win.

3. Southern Co. (NYSE: SO): Smart grids–remember those words. They’re likely to pop up a lot over the next few months as stimulus dollars start pouring in. Smart grids combine special meters, wireless technology, sensors and software so customers can closely monitor energy use cut and back when the grid is stretched to its limit. Southern Co., which powers a lot of Alabama, Georgia, Florida and Mississippi, has been one of the early leaders of this technology. Shares of SO have been down about 15% over the past 12 months, more than half of the S&P’s decline. The company maintains a healthy 20% operating margin. John Quealy, an analyst with Canaccord Adams in Boston, told Reuters that the companies best positioned to benefit from the stimulus are those that are running pilot projects and have already started the change.

Here’s a cool video on why utility stocks rule (:

Top ETFs for 2009- VBK, SDY, DLN and ITM

Monday, February 9th, 2009

ETFs are a great way to go for anyone looking to plug holes in their portfolio. If you’re looking for more exposure to foreign markets or can’t decide which biotech stock to invest in, maybe an ETF is the way to go. A lot of experts are pointing to ETFs as a good way for investors to get back some of their lost gains.

Here are a few differences between an ETF and an index fund.

Taxes: The big buzz about ETFs is their tax efficiency. The big “tax event” for ETF shareholders happens when you sell your shares, hopefully at a profit, after which you’ll pay capital gains taxes.

Expense ratios: By construction, ETF investors have less exposure to capital gains taxes than mutual fund shareholders. That’s because fund managers frequently buy and sell the fund’s holdings — and ask investors to pick up the tab. ETFs occasionally shift shares, too, although much less than most mutual funds. Annual expenses for ETFs range between 0.1% and 0.65% and are deducted from dividends. Index mutual funds charge anywhere from 0.1% to more than 3%.

Minimum investment requirement: For investors with limited funds (say, less than $1,000) who want to get started in the stock market, ETFs offer a cheap entrée. Through your discount brokerage account, you can buy one single measly share if you choose. In comparison, many index mutual funds have high initial balance requirements. (Those with lower requirements often charge higher fees.)

Ease of use: Here’s the double-edged sword of ETF investing. They are easy to buy — you simply need a discount brokerage account (and that’s easy to get — and cheap). Consequently, they’re easy to trade. And trade and trade and trade.

Here are a few ETFs we think are worth keeping an eye on:

1. Vanguard Small Cap Growth ETF (VBK): Although the year-to-date returns were -40%, we think small-caps may lead the charge of the next bull market. Roughly 19% of this ETF’s holdings are in healthcare and industrial materials–both reasonably stable sectors. Holdings include: Devry, Inc. (NYSE: DV), Edwards Lifesciences (NYSE: EW) and ANSYS, Inc. (Nasdaq: ANSS).

2. SPDR S&P Dividend (SDY): Dividend ETFs seem to be gaining a lot of interest lately. This investment seeks to replicate, before expenses, correspond generally to the price and yield of the S&P High Yield Dividend Aristocrats index. The fund uses a passive management strategy designed to track the price and yield performance of the Dividend index. It is nondiversified.SDY has been down almost 23% over the last 12 months. However, its holdings, which include Con Edison (NYSE: ED), FirstMerit Corp. (Nasdaq: FMER) and Vectren Corp. (NYSE: VVC), all of which we think are in sweet spots of the market.

3. WisdomTree LargeCap Dividend (DLN): Another dividend ETF. DLN’s holdings include Chevron Corp. (NYSE: CVX), Pfizer, Inc. (NYSE: PFE), and Wal Mart Stores (NYSE: WMT). he fund employs a passive management (or indexing) investment approach designed to track the performance of the WisdomTree LargeCap Dividend index. It attempts to invest all, or substantially all, of assets in the stocks that make up the Index. DLN generally uses a replication strategy to achieve its investment objective and generally will hold each stock in approximately the same proportion as its weighting in the index. It is nondiversified.

4. Market Vectors Intermediate Municipal (ITM): The fund invests at least 80% of total assets in fixed-income securities that comprise the index. It has adopted a fundamental investment policy to invest at least 80% of assets in investments suggested by its name.

Here’s a cool video on ETF investing: