The Big Cap
Utility shares shrug off rate outlook
By Don Scott, CBS MarketWatch
Last Update: 10:00 AM ET May 18, 1999 Columns & Opinions
Deep Pockets
NEW YORK (CBS.MW) -- The threat of rising interest rates should weigh heavily on utility stocks, right?
Not necessarily, says Bern Fleming Portfolio Manger of the American Express IDS Utilities Income Fund (INUTX: news, msgs). "Oddly enough," he says, those stocks have been "very, very cheap relative to almost anything else, and oddly enough, seem to be doing quite well here, with the concerns over interest rates and CPI."
Among the telephone stocks, Fleming likes MCIWorldcom (WCOM: news, msgs), one of his larger holdings. WCOM "has good growth characteristics, no yield, a high growth rate, a high price earnings ratio, which I think is compatible with the growth rate, and is doing things that phone companies didn't used to do. It's a fairly aggressive company." He looks for an earnings per share growth rate of 25 to 30 percent.
"It is such a pleasure to listen to a management team that is not only entertaining but has a business plan," he says with a smile but is quick to add, "They're very concerned about doing things that would be fairly dilutive to their earnings per share, and they've indicated they don't think that cellular is a necessary part of their plate of goodies that they offer customers."
Joe Sunderman, a Senior Analyst at Schaeffer's Investment Research, where they take options trading into account when judging a stock's attractiveness, agrees that MCIWorldcom looks strong these days. "It's trading along its 20 week moving average and Worldcom is one that continues to get a lot of option activity. It's got some call open interest at 90, nearly 12,000 contracts, but I think the trend for Worldcom is still up."
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