Utilities showed strong gains last year, but other industries are gaining ground.
“Risk comes from not knowing what you’re doing.” —Warren Buffett
Confirming what many at individual utilities already knew, the Dow Jones Utilities Index posted another year of solid gains in 2006 (see Figure 1).
The Dow Jones Utility group rebounded following the collapse of the energy sector in 2001-2002. Yet after unprecedented 20-plus percent gains for three consecutive years (2003-2005), another year of such gains would have been tough, and it was. In fact, in 2006, the Dow Jones Industrial Average beat the Utilities Index for the first time since 2003 (see Figure 2).
Key drivers for the gain for the Utility Index were AES, Centerpoint, PG&E, FirstEnergy, and Duke Energy (completed merger with Cinergy), which all posted stock price gains of more than 20 percent in 2006. Laggards, which recorded stock price gains of less than 10 percent, were Con Ed (reliability problems), Edison International, and PSEG (failed merger with Exelon).1
As might be expected, in connection with both the near-term and longer-term historical investor performance of the utility sector, there’s a story within the story. Further, this performance history provides a context against which the impact of both current and emerging issues can be assessed.