For consumers, this year's winter is looking even more frightening than a Halloween ghoul. Households heated with fuels could pay 30% to 48% more this winter compared to last year, according to the Energy Department's Energy Information Agency. That sounds like good news for utilities like KeySpan
So far this year, major oil and natural gas refiners like BP
Before the hurricanes curtailed Gulf fuel outputs, I was thinking of dabbling in a few natural gas utility companies. With a boom in new housing starts in the Northeast, according to the Commerce Department, I figured utilities would be signing on more customers. KeySpan, the largest natural gas distributor company in the Northeast, piqued my interest, since it was currently shivering near two-year lows. This stock offers a handsome 5.5% dividend yield and an improving balance sheet. With an estimated 1 million residential and 150,000 business prospects for conversion to gas heating, KeySpan could add approximately $600 million to gross profits over the long haul. That would bolster its gross margins, which have been declining in recent years.
But the problems are greater than they appear. Diversified utility companies like Exelon
With the majority of Northeast households heated with electricity (electricity is expected to rise by only 5% this year) and heating oil, this year's record natural gas prices may lead to fewer natural gas conversions. While some diversified utility companies with unregulated operations look attractive, KeySpan, a potentially attractive long-term possibility, could see a lower share price if fewer consumers convert to natural gas and more of them turn down their thermostats.
Further heated Foolishness:
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Fool contributor M.D. Mitchell is down the street at the local junkyard looking for some good trash. He thinks all the current negative energy on the Street has made for some great long-term buys. He owns none of the above companies.