With yields so low and risks so high in the current market environment, utility stocks represent an attractive investment, says Pimco managing director Bill Gross.
“So where does that leave you, the individual investor, the small saver who is paying the price of the .01 percent (money-market rate)?” the superstar bond fund manager writes in a commentary on the investment company’s Web site.
“Do you buy the investment-grade bond market with its average yield of 3.75 percent? Do you buy high yield bonds at 8 percent and assume the risk of default bullets whizzing at you? Or 2 percent yielding stocks that have already appreciated 65 percent from the recent bottom?”
The simple answer, he says: no.
“As banks, auto companies, and other corporate models become more regulated and therefore more like utilities and less like Boardwalk and Park Place, they will return less,” Gross writes.
“Why not just buy utilities, if that’s what the future American capitalistic model is likely to resemble?”
Gross points out that utilities are in the middle of the range between their 2007 peaks and 2008 lows.
“Their growth in earnings should mimic the U.S. economy as they always have, and most importantly they yield 5 percent to 6 percent, not .01 percent!”
Not everyone is bullish on utilities.
“Nowadays, a dollar invested in a utility stock is far from a sure bet,” says Chris Jones of The Motley Fool.
“Looming government regulation is making utilities a dicier proposition for investors.”
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