Filed Under:
Tickers in this Article: EMR, COMV, ESE, ABB
The decades old infrastructure that is used to power our cities is well overdue for an overhaul and it will cost billions. Now is the time to invest in the companies that will benefit the most from the upgrade here in the U.S. and the expansion taking place around the globe.

Many of our power grids were built in the '50s era, so it does not take a rocket scientist to figure out the need for upgrades and replacements. Technology over the last 50 years has changed dramatically and so has the use of energy by electronics. Depending on whom you listen to, the power grid spending estimates range from $10 trillion to $40 trillion. The bottom line is that there will be a handful of companies that benefit greatly from the upgrades.

Potential Power Plays
ESCO Technologies (NYSE:ESE) - ESCO supplies the utility industry with solutions to help companies better manage their energy usage and costs. The products are referred to as advanced metering and include the hardware and software to support the entire process. ESCO also has two other divisions: filtration and testing, but the real growth comes from the utility solutions group. For the quarter ended March 31, 2008, the utility solutions group grew sales by 51%. It is also the largest revenue generator of all the divisions. From a Technical perspective, the stock has had a great 2008, up 15% through mid July.

ABB Ltd. (NYSE:ABB) - This is one of the world's leading engineering firms. It is based in Switzerland and is a global leader in power and automation technologies that enable utility companies to improve performance and lower the environmental impact. Due to the demand for power grid upgrades here in the U.S. as well as new power grids in emerging countries such China, the demand for ABB's work will continue for decades. This is one of the best pure-play stocks in the infrastructure side of the power grids. With a P/E ratio of 15 and a PEG ratio below 0.8, ABB could also be considered a value play. (For more on valuation through ratios, check out the Investment Valuation Ratios Tutorial.)

Comverge (Nasdaq:COMV) - Comverge's "smart megawatts" technology helps manage power grids based on demand. As great as the technology sounds on paper, the stock market has not fallen in love with the stock. Comverge is down over 50% through the first six months of 2008 and not far from a new historic low. If Comverge were bought in the $13 area, there must be a tight stop-loss to prevent against more big downdrafts. (To discover how to use this strategy, read The Stop-Loss Order - Make Sure You Use It.)

Emerson Electric (NYSE:EMR) - Emerson Electric could be considered a conglomerate because its reach spreads across a number of industries. The reason it made this list is the exposure it has to products that can be used by utilities to help energy efficiency. It is also always on the cutting edge, so you never know what it will come up with next. The stock has been punished lately with the market and, in the $40s, it could be considered a solid long-term play.

Long-Term Megatrend
The upgrade and expansion of the power grids in the U.S. and abroad is one of the investment megatrends that I feel will outperform the market for years to come. The key to investing in this type of trend is that you must accept that it will take time to realize the big gains, and patience is required.

comments powered by Disqus

Trading Center