Roger S. Conrad

Imagine a future where US coal-fired power plants continue to generate reliable baseload power, while CO2 collected during their operation fuels the shale oil boom. 

Elliott Gue and Roger Conrad attended the Energy Information Administration's annual conference on Monday and Tuesday. Here are their key takeaways and top investment ideas from the event.

Three US electric utilities are now investing in LNG exports through new acquisitions. However one of these is uniquely positioned to bring new LNG export capacity on line and open North American gas to the world.

NextEra Energy Partners LP (NYSE: NEP)--a publicly traded partnership that specializes in renewable energy--has been a slam dunk since its initial public offering (IPO) on June 26. But at these levels, there are better plays in this industry.

Since the beginning of May, 80 percent of the companies in our model Portfolios have hit 52-week highs. And the rest are a good day’s trading from this achievement. Our Aggressive Income Portfolio has delivered an average return of 27.5 percent since its inception, roughly doubling the 13.7 percent gain posted by the Dow Jones Utilities Average over equivalent holding periods. Meanwhile, the picks in our Conservative Income Portfolio have generated an average return of 13.4 percent, slightly lagging the benchmark index’s 14 percent gain.

But new risks have emerged that bear monitoring. A growing focus on allowance for funds used during construction (AFDUC) has identified some utilities that may be at risk of potential write-downs. Meanwhile, others find themselves in the crosshairs of the Obama administration’s aggressive environmental policies.

The greatest danger to most of the 207 stocks in my Utility Report Card comes when investors’ expectations rise along with prices. That’s why it’s critical to stick with my buy targets, which are based on long-run value—not near-term momentum.

Be patient when a stock you want to buy moves above my buy target. I will raise those targets when potential returns rise and risks diminish. Until then, focus your firepower on the stocks highlighted in this issue.

The outlook is much brighter for this utility's foray into solar, and for one of our closed-end funds. Unfortunately, other companies still face serious challenges.

At last count, more than half our Portfolio holdings traded above my buy targets. These are all great companies that will continue to build wealth for investors, but now is the time for discipline.

Rarely will you find a sector’s top-quality stocks on sale more than five years into a bull market. But that’s the case with this new Conservative Income Portfolio holding. Record demand has enabled this utility to grow its first-quarter earnings by 19.7 percent year over year.

Thanks to the rapid development of renewable energy and the support of state regulators, this utility has moved to break its addiction to imported oil, setting the stage for higher profits over the long term and lower bills for consumers.

With valuations elevated in the utility sector, investors should pay close attention to the risks and opportunities created by four key themes.