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Strategies & Market Trends : Value Investing
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To: Philip H. Lee who wrote (2899)1/1/1998 10:41:00 AM
From: Dan Packer  Read Replies (2) of 78529
 
>>1. Electric Utilities will be hot (on a risk/reward basis), with total returns of 20-35%.<<

Your previous post indicated that you have a large portfolio weight with this concept in mind. Perhaps you can elaborate.

Although the general concept seems valid, I personally don't know how to choose the winners. In my limited experience from California, there are many unknowns even at this stage. The old-line utilities cannot compete. They did well in a monopoly situation harvesting 11% on depreciated book. There appear to be huge stranded costs aside from nuclear. It's possible that upper management has been re-educated, but I wouldn't bet the farm on it. SCEdison appears to be throwing the baby out with the bath water in the few small situations I am familiar with. SDG&E and PG&E appear to be making superficial changes. They don't seem paranoid enough to thrive in competition. They appear to be getting out-flanked by such large power users as water agencies. There are lots of rogue power brokers out there working deals with the big users. There are multi-level marketing scams targeting the individual consumers. In California the PX is put off another quarter, meanwhile the old line utilities are having to roll back prices by 10%. At some point folks may realize that the utilities have been screwing them all along - potentially a public relations disaster. I really don't know how you pick a winner for a passive investment today.

Dan
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