Different sectors of the economy have higher and lower risks. I’m not risk adverse, but it’s hard to determine in today’s uncertain market of what and where to place any mon-ey. I don’t want to sit with it frozen. I keep an eye on things each day, and have done so since starting online stock trading.
Working like an online stock broker, one area I’m going to look at closely is utilities both domestically and internationally.
I’m not going to be buying these stocks with the idea that I’m going to be doing some quick trading. This won’t be for the short term.
No matter what happens in the rest of the market, there will still be a need for utilities — electricity, gas, other energy– going forward. True, some of these utilities may face a bit of a struggle, especially if they are maintaining high rates. Eventually, however, if they hope to move their product like any other thing, their rates will have to come in line with the market.
So, I’m really going back to basics, and will look at any utility stock I find based on its fundamentals.
Some of the fundamentals I will examine are the stocks that seem to be undervalued based on the market, where the upside to the stock has more potential than the downside.
The Price/Earnings ratio has a lot to do with taking any decision on a purchase for me right now. Online stock trading makes this much easier to monitor and to research.
The S&P 500 P/E ratio tends to average in the 20 – 25 range. Utility stocks are not often valued so high, so the P/E ratio should be in the high teens. This is what I’ll look for.
The area of the country will be important, too, if we are talking the United States. Though the northeast and midwest can offer the potential to have some nice returns for utility companies, a lot of that is reliant on the seasonal weather. Have a mild winter and revenue to the utilities is reduced. In addition, some of these older “smoke stack” areas of the country are facing economic troubles that can mean people will be more conservative with anything, in-cluding how they heat their homes and how much heating oil they purchase.
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