- Regulated utilities still look rich with interest-rate headwinds possible.
- Our first glimpse at implications from emissions regulations suggests the market is underestimating their impact.
- Even after cutting our 2014 midcycle power price assumptions, diversifieds and power producers still appear cheap.
The utility sector continues to be a tale of two divergent groups. The fully regulated utilities continue to climb as investors seek yield and safety in an ultralow interest-rate environment. Electric demand climbed 1% in the second quarter year over year, and industrial demand continues to climb back from its 2009 lows, providing fundamental stability. But if rates turn, inflation kicks in, or the economy falls into another recession, these utilities have a long way to fall.
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Travis Miller does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.