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Stock Strategist

Five Utility Stocks to Keep on Your Radar Screen

At the right price, these firms would be solid investments.

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Utility stocks have been on an impressive run over the past three years--the sector is up 23%, second only to energy. At Morningstar, we're sticklers for valuation; we think that the price investors pay for a stock is one of the most critical factors in making a sound long-term investment. This is especially relevant in utilities, where investors often bid up prices in their desire for high-yielding assets.

Because we're looking for stocks priced at a comfortable discount to our fair value estimate, utility stocks' outstanding performance has left us with few compelling investment ideas today. As of Aug. 4, the average price/fair value ratio for the 70-plus utility stocks that we cover sat at a discouraging 1.12. Highlighting this overvaluation, none of these stocks currently holds a 5-star Morningstar Rating for stocks. And just two are currently rated 4 stars: Huaneng Power International (HNP) and  United Utilities (UU).

Elizabeth Collins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.