Fool.com: What's the Opposite of Technology? Utilities (Breakfast News) December 31, 1999

BREAKFAST WITH THE FOOL

Friday, December 31, 1999

"What is there more of in the world than anything else? Ends."
-- Carl Sandburg

What's the Opposite of Technology? Utilities

By Richard McCaffery (TMF Gibson)

It's no surprise that technology stocks outperformed every other sector in the Standard & Poor's SuperComposite 1,500 this year. This group of stocks rose 71.9% in 1999, compared to 70.9% last year.

The hottest-performing sector in technology? Semiconductor equipment, which jumped 157%, compared to a mere 26.5% last year, as the industry pulled out of a viscous slump. When you think of semiconductor equipment, think Applied Materials (Nasdaq: AMAT), which hopped from $41 1/2 to $127 3/4 for a 208% gain.

OK, so if technology stocks grabbed the crown, which sector mopped the floor? Utilities, which slid 14.7% in 1999 after moving up 8.1% last year. Among four groups of utilities companies, only independent power producers had a good year, finishing up 39.5% after a 5.2% gain last year.

Electric utilities were the worst-performing group of the S&P 1,500's worst-performing sector, dropping 22.4% compared to a 10.2% gain last year. Ouch.

For nine consecutive years electric utilities have trailed the market, according to Kit Konolige, an analyst at Morgan Stanley Dean Witter, who said that regulation and a lack of value-creating moves is crushing the group. One of the few bright spots was Montana Power (NYSE: MTP), which has been investing in a valuable fiber optic network. (See this related Fool on the Hill column.)

Before you leave this sector for dead, remember Peter Lynch, the former Fidelity Magellan fund manager, who encouraged investors to find value in out-of-favor sectors.

Other than Konolige, a confessed contrarian, did anyone else warm to this unloved group at the cusp of the new millennium? Well, Warren Buffett, one of the great business minds of our age and perhaps the greatest investor of all time, found value in the electric utilities sector. Buffett's Berkshire Hathaway (NYSE: BRK.A) took the leap into the electric utilities business in October as part of a group that paid $9 billion in cash and assumed debt for MidAmerican Energy Holdings (NYSE: MEC).

Based in Des Moines, Iowa, MidAmerican, through its retail subsidiaries MidAmerican Energy and Northern Electric in the United Kingdom, offers electricity to 2.2 million customers and natural gas to 1.2 million. MidAmerican also owns HomeServices.Com (Nasdaq: HMSV), a residential real estate brokerage firm that went public October 14.

Now, just because Buffett found value in electric utilities doesn't mean you will. After all, he's not perfect, and half the battle of finding good stocks is deciding what's right for you in terms of risk, reward, and personal interest. But here's a sector away from the herd that might be worth a closer look. At least you'll have a chance to hunt in the open.

News to Go

Officials at solid waste disposal company Waste Management (NYSE: WMI) said they overpaid in a big way for their $1.15 billion purchase of Eastern Environmental Services last year. In a lawsuit, company officials claim Eastern's chairman fudged the company's profits to swing the deal, The Wall Street Journal reported.

Satellite television services company EchoStar Communications (Nasdaq: DISH) said last night that it had terminated its proposed $23 million purchase of certain assets of SkyView Media, a company it moved to buy December 15. The company didn't give a reason for its decision.

Long distance telecommunications company Sprint (NYSE: FON) said it reached a tentative deal with unhappy workers in five out of six states and that a strike deadline has been pushed back until midnight on Monday, Bloomberg reported.

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