Thursday, July 2, 2009

When A Low Beta Isn't Enough

Today's creaming wasn't confined to the high-beta fallen angels; it extended even to a sector that's known more for staidness. Three electric utilities fell by more than 4% today: First Energy (-4.17%), Ameren Corporation (-4.57%), and Spectra Energy (-4.14%). These, on a day that the three major averages fell by less than 3%.

First Energy has a beta of 0.47, and Ameren's is 0.73. Spectra's isn't noted at Google Finance, but its is similar to the other two's. The two provided betas made for drops that statistical analysis would peg as "unusual." Two conclusions can follow: either the electric utility industry is going under a cloud, or these stocks were panic-dumped and are now on sale.

I have some skin in the game, as my actively-managed Marketocracy mock fund has Ameren in it. Given the panicked nature of the drop today, nevertheless, I would say that the second conclusion is the correct one. The chief risks for utilities in this time would be economic or political. There's no political risk on the horizon, as the utilities have neither loused things up nor made convenient scapegoats. It could be the global warmingists on the march, but there are no premonitionary drops I can see. Ameren's action, especially, has been pretty boring of late.

It looks to me like the stocks simply went on sale. As a side note, Spectra declared its regular dividend after trading ended; the amount stayed level with the previous quarter.

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