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By Jason Stipp | 07-12-2010 12:06 PM

After the Gulf Spill, a Brighter Future for This Utility

Short- and long-term drivers bode well for this utility's nuclear-fired merchant fleet, with a nice dividend yield in the meantime.

Securities mentioned in this video
EXC Exelon Corp

Jason Stipp: I'm Jason Stipp from Morningstar. As BP and the market continued to contend with the Gulf oil spill, Morningstar's Paul Larson, editor of the Morningstar StockInvestor newsletter, has been looking for stocks that may have been unfairly punished as a result of the disaster in the Gulf. He found something interesting in the utility sector, and he is here to tell us a little bit about it today.

Paul, thanks for joining me.

Paul Larson: Thanks for having me.

Stipp: So, this is an investment theme you have been thinking a lot about recently, and you came upon a pretty well-known utility. Tell us a little about the company and what it does.

Larson: Right. Well, when I was thinking about the oil spill, I thought to myself, "Okay. Let's try and find some of the silver linings here." And one of the stocks that I found is Exelon, a company that's actually in the Tortoise Portfolio in the StockInvestor newsletter.

And Exelon is a utility company, they own regulated utilities, ComEd here in Northern Illinois and PECO in Pennsylvania. But where the company gets the majority of its earnings and where the majority of their future value is, is their merchant power-generating business, and this is a business where they get the majority of their power from nuclear power plants. So, when you think about Exelon, it's clear that we should think about it as a nuclear power plant operator.

Stipp: Okay. And you mentioned to me that there are some different drivers that may be affecting its growth prospects in the future. What are some of the short-term drivers that you are looking at that may bode well for Exelon?

Larson: Well, the short-term drivers are, we have a normalization in the weather. In 2009, we had an extremely cool summer season, and in 2010, with the recent heat wave, we're having a much more normal weather pattern. And this is bullish for both electricity demand and power prices.

And then also, I would say that industrial production is another area that that's a bright spot. At the height of the recession, we saw industrial power demand actually decline from the peak by about 15%, which is just an unprecedented decline in power demand, and as the recovery continues to gain steam, we foresee a recovery in actual demand for electricity.

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